kfc denmark's bsc design
TRANSCRIPT
Lund University – School of Economics and Management
Department of Business Administration
FEKN90
Business Administration
Degree Project, Master of Science in Business and Economics
Spring 2012
A case study of KFC Denmark:
How Balanced ScoreCard scale down into small organizations
Author: Zhiyi You (Jenny)
Supervisor: Rolf G. Larsson
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Abstract
Title: A case study of KFC Denmark – How BSC scale down into small organizations.
Seminar date: 2012-05-30
Course: Master thesis in business administration, 30 University Credit Points (30 ECTS).
Authors: Zhiyi You (Jenny)
Advisor: Rolf G. Larsson
Five key words: BSC, scaling, small organization, implementation, design
Purpose: The purpose of this research is to study how performance measurement- and
management systems such as BSC scale down into small organizations. Since the data is scarce
and rarely documented and published, the author sought to perform a case study and action
research in an organization that was planning on implementing BSC. The results from this study
would help shed more light on the topic of how BSC scale down into small organizations.
Methodology: The methods used for this report were case study and action research. The author
has both a professional relation and a personal relation with KFC Denmark. Action research was
used because the author together with top management in KFC Denmark analyzed the current
conditions of KFC Denmark, and then designed a BSC. An analysis of the design compared to
theory and empirical data was conducted after KFC Denmark had set its BSC design targets.
Data was gathered through interviews with top management and analysis of secondary data such
as financial reports, internal financial reports, training documents, franchise rules.
Theoretical perspectives: Theories used for this report revolved around BSC, its possibilities
and limitations. The report discusses scaling, designing and implementing BSC for small
organizations. Difficulties that can surround a design and implementation as well as general
obstacles that can occur in all organizations, including the limitations of BSC are discussed.
Empirical foundation: The data in the field regarding BSC for small organizations are scarce
compared to data about large corporations. The empirical data used for this study consisted of a
failed BSC design in a SME. Reasons for the failure were identified. The data was then
compared to KFC Denmark’s design to provide additional input for the author to assess the
success of KFC Denmark’s BSC design.
Conclusions: After comparing KFC Denmark’s BSC design with how BSC theory prescribed
and with the empirical case of a failed BSC in a SME. The author deemed it feasible to
implement BSC in small organizations, in this report an organization with less than 100
employees as KFC Denmark. While conditions in small organizations are not always optimal to
implement BSC due to time and resource constraint, partial or imbalanced implementations
could reduce the difficulty and improve the success rate.
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Foreword and acknowledgements
During the past seven months, I have gone through the most memorable time of my life. This
thesis could not have been accomplished without the marvelous support and cooperation from
my supervisor, KFC Denmark’s top management and employees, my family, my friends and my
classmates.
My sincere gratitude goes to my supervisor, Rolf G. Larsson whose profound knowledge,
rigorous guidance, generous assistance and patience have been invaluable in writing my thesis.
From planning the research to the accomplishment, I benefited tremendously from his
instructions, suggestions, comments and corrections. His inspiration and encouragement gave me
great momentum when I came across difficulties during the writing process. Without his
consistent efforts in revising and polishing my work, the completion of the thesis would not have
been possible. Words cannot express how I appreciate his kind help.
Furthermore, I would like to extend my gratitude to Bjartmar Trastarson and Snorri Trastarson,
the CEO and GM respectively of KFC Denmark. They provided a lot of support and information
that assisted the completion my thesis. My gratitude goes out to the other employees of KFC
Denmark who provided me with input and feedback. I’d also like to thank my classmates
Camilla Wengholm and Charlotte Hermansson for providing me with valuable feedback
throughout the thesis progression, their invaluable feedback has helped me to improve my thesis.
Additionally, I would like to say thank you to my friends, whether they are here in Sweden,
Denmark or far away in China, who supported me by staying with me, listening to my
complaints, encouraging me and helping me work out the problems during the whole writing
process.
Finally, my great gratitude goes to my beloved family and my parents, my fiancée and his family
for their loving considerations and great confidence in me. No matter how difficult it felt, you
were always there and supported me. I love you all!
_______________________
Zhiyi You (Jenny)
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Table of Contents
CHAPTER 1. INTRODUCTION ................................................................................................ 8
1.1 Background ............................................................................................................................................................ 8
1.2 Purpose and background of analyzing KFC Denmark ...................................................................................... 8
1.3 Research discussion ............................................................................................................................................... 9
1.4 Research topic ...................................................................................................................................................... 10
1.5 Author’s objectives .............................................................................................................................................. 11
1.6 KFC Denmark’s objectives ................................................................................................................................. 11
1.7 Overview of the report ........................................................................................................................................ 12
CHAPTER 2. RESEARCH METHOD .................................................................................... 13
2.1 Case study ............................................................................................................................................................. 13
2.2 Action research .................................................................................................................................................... 14
2.3 Data gathering...................................................................................................................................................... 14
2.4 Execution of the action research in this case study ........................................................................................... 16
2.5 Credibility ............................................................................................................................................................ 17
2.6 Overview ............................................................................................................................................................... 18
CHAPTER 3. THEORY ............................................................................................................. 19
3.1 Definition of BSC ................................................................................................................................................. 19
3.2 The four perspectives .......................................................................................................................................... 20
3.2.1 Financial perspective ...................................................................................................................................... 20
3.2.2 Customer perspective ..................................................................................................................................... 21
3.2.3 Internal processes ........................................................................................................................................... 21
3.2.4 Learning and growth perspective ................................................................................................................... 21
3.3 Considerations when building a BSC ................................................................................................................. 22
3.4 How to build and implement BSC according to theory .................................................................................... 23
3.4.1 Designing process .......................................................................................................................................... 24
3.4.2 Implementation theory ................................................................................................................................... 25
3.5 Risks and difficulties ........................................................................................................................................... 26
3.6 Discussion about BSC .......................................................................................................................................... 26
3.6.1 BSC is just another performance measurement system .................................................................................. 26
3.6.2 BSC can be implemented in a SBU even if higher management isn’t involved ............................................ 26
3.6.3 BSC is just another management trend .......................................................................................................... 27
3.7 Critique ................................................................................................................................................................. 27
3.7.1 Common obstacles ......................................................................................................................................... 27
3.7.2 Lack of continuous support ............................................................................................................................ 28
3.7.3 Responsibility for implementation is delegated to lower management .......................................................... 28
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3.7.4 Lower management attempts to implement a management system themselves ............................................. 28
3.7.5 Information overload ...................................................................................................................................... 29
3.7.6 Resistance to change ...................................................................................................................................... 29
3.7.7 Preserving status quo ...................................................................................................................................... 30
3.7.8 Too much focus on financial metrics ............................................................................................................. 30
3.8 Limitations ........................................................................................................................................................... 30
3.9 Empirical reference case of why BSC failed in a SME ..................................................................................... 31
3.9.1 Design failure ................................................................................................................................................. 31
3.9.2 Process failure ................................................................................................................................................ 32
3.9.3 Externality ...................................................................................................................................................... 32
CHAPTER 4. CURRENT CONDITIONS OF KFC DENMARK ......................................... 33
4.1 About KFC Denmark .......................................................................................................................................... 33
4.2 Vision and strategy .............................................................................................................................................. 33
4.3 Management structure ........................................................................................................................................ 34
4.4 Procurement sources ........................................................................................................................................... 34
4.5 Staff recruitment .................................................................................................................................................. 34
4.6 Work processes .................................................................................................................................................... 35
4.7 Central warehouse ............................................................................................................................................... 35
4.8 Decentralized decision making ........................................................................................................................... 35
4.9 Staff scheduling and staff rotation ..................................................................................................................... 35
4.10 Purchase amounts .............................................................................................................................................. 35
4.11 Staff policy .......................................................................................................................................................... 36
4.12 Staff training formality ..................................................................................................................................... 36
4.13 Career opportunities ......................................................................................................................................... 36
4.14 Staff rewards and incentive .............................................................................................................................. 37
4.15 Staff performance .............................................................................................................................................. 37
CHAPTER 5. DESIGNING AND IMPLEMENTING BSC IN KFC DENMARK .............. 38
5.1 Discussing BSC design ......................................................................................................................................... 38
5.2 Crafting a vision ................................................................................................................................................... 39
5.3 Designing KFC Denmark’s BSC ........................................................................................................................ 39
5.3.1 Strategic goal .................................................................................................................................................. 40
5.3.2 Financial perspective ...................................................................................................................................... 40
5.3.3 Customer perspective ..................................................................................................................................... 42
5.3.4 Internal business process perspective ............................................................................................................. 43
5.3.5 Learning and growth perspective ................................................................................................................... 44
5.4 Defining leading and lagging indicators into a strategy map ........................................................................... 46
5.5 Ideas for implementing BSC ............................................................................................................................... 47
5.6 Analysis of KFC Denmark’s implementation ................................................................................................... 47
5.7 Set evaluation milestones and follow up processes ........................................................................................... 48
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CHAPTER 6 CULTURAL AND INDUSTRY ANALYSIS .................................................... 50
6.1 Reviewing the research topic .............................................................................................................................. 50
6.2 Cultural overview ................................................................................................................................................ 50
6.3 Culture variables ................................................................................................................................................. 51
6.3.1 Individualism–collectivism (IDV).................................................................................................................. 51
6.3.2 Uncertainty avoidance (UAI) ......................................................................................................................... 51
6.3.3 Power distance (PDI) ..................................................................................................................................... 52
6.3.4 Masculinity-femininity (MAS) ....................................................................................................................... 52
6.3.5 Long term orientation (LTO) ......................................................................................................................... 52
6.4 Cultural analysis .................................................................................................................................................. 52
6.4.1 PDI ................................................................................................................................................................. 53
6.4.2 IDV ................................................................................................................................................................. 53
6.4.3 MAS ............................................................................................................................................................... 54
6.4.4 UAI ................................................................................................................................................................. 54
6.4.5 LTO ................................................................................................................................................................ 55
6.5 General culture analysis ...................................................................................................................................... 56
6.6 Impact of culture ................................................................................................................................................. 57
6.7 Analysis of the fast food industry ....................................................................................................................... 57
6.7.1 High turnover rate .......................................................................................................................................... 57
6.7.2 Low salary ...................................................................................................................................................... 58
6.7.3 Low barrier for entry and exit ........................................................................................................................ 58
6.7.4 Large pool of potential employees ................................................................................................................. 58
6.7.5 No employee empowerment ........................................................................................................................... 59
6.7.6 Impact from industry affiliation ..................................................................................................................... 59
CHAPTER 7 ANALYZING BSC IN SMALL ORGANIZATIONS ...................................... 60
7.1 Theoretical BSC design and KFC’s BSC design ............................................................................................... 60
7.2 Comparing KFC’s BSC design to empirical case ............................................................................................. 62
7.3 Overview ............................................................................................................................................................... 63
CHAPTER 8 CONCLUSION .................................................................................................... 64
8.1 The outcome of this report .................................................................................................................................. 66
8.2 Future research proposals .................................................................................................................................. 66
REFERENCES: .......................................................................................................................... 68
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APPENDIX .................................................................................................................................. 78
1. Organization structure .......................................................................................................................................... 78
2. Top management, background information ........................................................................................................ 79
3. Interview 1, questions ............................................................................................................................................ 80
4. Interview 2, questions ............................................................................................................................................ 80
5. KFC Denmark’s BSC targets ............................................................................................................................... 82
6. Strategy map .......................................................................................................................................................... 83
7. KFC Denmark’s BSC design and theoretical BSC design ................................................................................. 84
8. Article ..................................................................................................................................................................... 85
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Chapter 1. Introduction
This chapter will cover the purpose of the research topic the author chose, as
well as the reasoning behind the selection of the research subject. General
information about the research subject will be presented, as well as the
author’s personal engagement in KFC Denmark. A clarification of the
difference between the author’s objective and KFC Denmark’s objective is
presented at the end of this chapter.
1.1 Background
Isken Aps is a family owned company that is franchising the American fast food brand Kentucky
Fried Chicken (KFC). The company was founded in 1986 and is currently managing four KFC
restaurants with more than 80 employees in the Copenhagen area in Denmark. The gross revenue
from 2010 was 43 million Danish kronor and the annual revenue of the company has consistently
grown by 9% every year for the last ten years.
This report will cover the use of Balanced Scorecard (BSC) in a small organization. BSC is a
management control system that is used to balance performance measurement metrics from four
different perspectives in an organization to achieve both long term and short term competitive
advantages. Its purpose is to mitigate the deficiencies of traditional performance measurement
systems that mainly focused on financial metrics.
The author has a professional and a personal relationship with KFC Denmark, as KFC Denmark
is the author’s family business, having worked in KFC Denmark for over 7 years and at the time
of this report, has achieved the position of local operations manager at one of KFC Denmark’s
restaurants. The author has knowledge and experience of working in all the positions in a KFC
restaurant. The author has also been involved in the development and launch of a new side
product. Furthermore the author has also been involved in the recruitment of the majority of the
current employees working in the different restaurants.
1.2 Purpose and background of analyzing KFC Denmark
The reason why KFC Denmark was selected was because the company had already decided to
implement BSC as a performance measurement- and management system, and that the condition
of the company matched the topic that the author was researching. The author also has a long
history of working in KFC Denmark, and is currently in a position that involves direct contact
with top management. As implementation of BSC in small companies is a field with relatively
scarce data (Rillo, 2004; Tennant, Tanoren, 2005), it seemed fitting that KFC Denmark would be
a good organization to research. The author analyzed KFC Denmark’s current situation and then
created a draft design for a BSC coordinated with top management to discuss and agree on a
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corporate wide strategy and finally implement the BSC in KFC Denmark’s operations of
franchising the KFC brand in Denmark. The European Headquarters of KFC has demanded that
all KFC franchisers’ in Europe implements BSC. The European headquarters have decided to
leave it to each franchise licensee to setup a strategy and create relevant metrics in its
implementation of BSC.
1.3 Research discussion
The small supply of data regarding BSC for small organizations could be attributed to several
factors (Nicholas, 1977; Rompho, 2011). Past research has indicated that there are 3 main factors
that affect the use BSC for small organizations (Nicholas, 1977; Rompho, 2011).
The 1st factor is that small organizations that are still in a growth and expansion stage usually
don’t restructure the organization as the environment within the organization is changing too
rapidly, and focus is usually on sales, product/service development and human resource
management (Stanley, 1985).
The 2nd
factor is that small organizations might lack the financial resources to research and plan
an implementation of BSC compared to other big organizations (Nicholas, 1977). As small
organizations don’t have the same financial strength as the large organizations usually cited in
reference cases (Kaplan, Norton, 1996, 2001; Marr et al., 2004; Silk, 1998; Malmi, 2001;
McAdam, 2000; Andersen et al., 2001), so even if a small organization would be interested in
implementing BSC, it might not be feasible or financially reasonable.
The 3rd
factor could be a lack of incentives to restructure, as one perception of BSC is that it’s
just another management system to measure financial metrics (Kaplan, Norton, 1996). Small
organizations’ usually work in an ad hoc way, in other words they are formally structured, but
the work process and workflow is informal, often organized in a matrix like structure working in
teams that assemble for a project and then disbands when the project is finished (Curtis, 1975).
In organizational theory it is referred to as a flat organization, as communication is done directly
between the involved parties and does not travel through layers of hierarchy (Blau, 1962). For
these small organizations the implementation of BSC might introduce more bureaucratic work
then what was inherent.
The author considers two other factors in this case study, that can affect the outcome of the BSC
design and implementation.
The 1st factor that is unique for this research paper is the fast food industry that KFC Denmark is
active in. The fast food industry does not carry similarities that are replicable in other industries,
nor is it similar to other businesses in the food and service industry. Characteristics such as low
pay, high employee turnover rate, young employees and few career options to name a few. Those
factors can have a noticeable impact on the flexibility in how BSC for KFC Denmark can be
designed (Tudor, 2011)
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The 2nd
factor unique for this research paper is culture, as BSC originates from USA. It has been
crafted and designed in a nation which is distinctly different from the nation where it will be
used in this report. As such the author considers cultural difference a factor that can have a
profound impact on both the design and implementation of BSC in KFC Denmark, these
differences can have an impact on the success of implementing BSC (Child, 2005)
Considering the mentioned characteristics that are prevalent in the research subject, and the
management control system that is to be implemented, the generalizability of the results attained
in this report is dependent on the impact from the various factors mentioned when designing the
BSC system. Regardless of the original intention of BSC, the actual implementation in each
situation is case specific. The end result from KFC Denmark’s decision will reveal whether the
mentioned factors will be limiting or benefiting KFC Denmark’s BSC design.
When considering how well a BSC implementation would work in a small organization one
would have to consider the degree of formalized bureaucracy and if there is any discrepancy
between the formalized work flow and the informal work flow (Peter, 1962). Let us consider
two examples. If company 1 is a small organization that is strongly hierarchical with no
difference between formalized work processes and actual work processes, with a habit of using
management systems with strict formalized goals communicated throughout the organization.
Then an implementation of BSC would be easy to communicate, as there is already a structure
similar to the financial perspective of BSC. However this does not guarantee a smooth
implementation though, an implementation that is successfully designed can still fail in its
operation (Rompho, 2011).
Then there is company 2, which is an organization that has a formalized paper hierarchy. But
with a large discrepancy between the formalized work flow and the informal work flow.
Responsibility is shared between positions that are unrelated with authority resting on
management. There is no clear management system with strict financial goals or other metric to
measure performance and lead the company’s development. An implementation of BSC into an
organization that lacks any experience of working with formalized management- or measurement
systems would face more challenges, compared to an organization that has experience of similar
management or measurement systems (Kaplan, Norton, 1996; Child, 2005). However that is not
an impossible obstacle for implementing BSC. As has been mentioned, the success of
implementing BSC depends on many risk factors and driving factors (Kaplan, Norton, 1996).
1.4 Research topic
The research topic of this report is to analyze how BSC scale down in organizations. Countless
research papers and reference literature have already covered how well BSC scale from an
organization with 100s of employees to 10000s of employees (Kaplan, Norton, 1996, 2001; Marr
et al., 2004; Silk, 1998; Malmi, 2001; McAdam, 2000; Andersen et al., 2001). The cases covered
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in reference papers and literature usually doesn’t cover BSC implementations in small
organizations with less than 100 employees (Rillo, 2004; Tennant, Tanoren, 2005).
How does Balanced Scorecard scale down into small organizations?
The author was seeking to both expand the empirical data available regarding BSC in small
organizations as well as to engage in and direct KFC Denmark’s BSC implementation.
1.5 Author’s objectives
The author’s objective is to engage and guide top management in KFC Denmark in
implementing BSC. From the results of KFC Denmark’s BSC design and implementation,
analyze how BSC can scale down in a small organization. Considering the differences that exist
between the corporations that are usually cited in literature and the research subject of the author
(Kaplan, Norton, 1996, 2001; Marr et al., 2004; Silk, 1998; Malmi, 2001; McAdam, 2000;
Andersen et al., 2001), there are differences in organizational structure, organizational size,
management, culture and industry.
1.6 KFC Denmark’s objectives
KFC Denmark’s objective with implementing BSC was to adhere to the demand from KFC
Europe, while at the same time perform a thorough analysis of the company. KFC Denmark also
hoped to achieve a better understanding of how it performed with the use of a new management
system.
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1.7 Overview of the report
The overview of the report is divided into 8 parts.
Introduction chapter covers the purpose of the research topic the author chose, as well
as the reasoning behind the selection of the research subject. General information about
the research subject will be presented, as well as the author’s personal engagement in
KFC Denmark.
Research chapter method will cover the author’s methods for this research as case study
and action research. Execution will detail how and when the data for this report was
gathered from interviews and KFC documents.
Theory chapter will cover the concept behind BSC. Theoretical design process and
implementation theory is presented. The author has considered common discussion
topics, limitations and critique regarding BSC. An empirical reference case is presented
to provide a framework for BSC in SME.
KFC’s conditions chapter will cover a detailed analysis of KFC Denmark’s current
conditions, ranging from management structure, corporate vision to employee policy.
BSC designing and implementation chapter covers the design of KFC Denmark’s BSC
and the planned implementation of BSC. The discussion between tradeoffs between the
choices considered and choices chosen is presented.
Culture and industry chapter covers the analysis of culture and the fast food industry.
The author perceived culture and fast food to have an impact on KFC Denmark’s
implementation of BSC.
Analyzing BSC chapter will cover the analysis of KFC Denmark. The analysis will
cover all the factors that have been previously discussed, method, theory, KFC
Denmark’s current condition, KFC Denmark’s BSC design, culture and fast food
industry.
Conclusion chapter covers the conclusions that the author has reached after analyzing
KFC Denmark’s design, the feasibility of its design, implementation, and consideration
regarding alternative approaches.
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Chapter 2. Research method
This chapter will cover the theory regarding the research strategy, information
regarding data types and credibility. The author’s methods for this research
were case study and action research. As the author had a personal stake in the
change process and was directing its course. Additionally, the choice to use
action and case study strategy is due to the author’s personal engagement as
explained in Chapter 1. Execution will detail how and when the data for this
report was gathered.
The research strategies that were used for this report were case study and action research, the
reason two strategies were used was because the author had an active role in driving the change
in KFC Denmark, while at the same time observing and documenting the process. Top
management in KFC Denmark had been instructed by KFC Europe to implement BSC, so it
wasn’t the need of KFC Denmark that initiated the change process. As such the author, whom
had the most knowledge regarding BSC, was coordinating and directing the change. But not
making the final decision on which actions to take or metrics to use.
2.1 Case study
A case study focuses on analyzing a single phenomenon in a population, organization, location in
the context of its occurrence. The aim is to get a deep understanding by observing the research
subject in its natural surrounding and understand activities and effects in its context. A case study
analysis can allow a researcher to understand “how, why and what” is happening in a
phenomenon (Saunders, Lewis, Thornhill, 2003). The usefulness of conducting a case study is
reliant on 3 factors: reliability, duplicability and validity (Bryman, Bell, 2005; Yin, 1984). This
is of course dependent on the researcher, if they want to make generalized statements from the
results or just understand the processes in a unique context. Case study strategy usually makes
use of both quantitative and qualitative methods to gather data (Saunders, Lewis, Thornhill 2003).
Yin (1984) describes 3 distinct types of case study:
The critical case, the purpose is to test a theory and a case is selected to achieve a greater
understanding of a phenomenon.
The unique case, the purpose is to get a deeper understanding of the results and processes
involved in a phenomenon.
The informative case, the purpose is to observe and analyze a phenomenon that can
hopefully yield useful information that can be useful in more than just one case.
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2.2 Action research
Action research involves direct action affecting the direction and nature of the change that is to
occur, maybe even being the main driver for change (Marsick, Watkins, 1997; Coghlan,
Brannick, 2001). When conducting action research there are two distinct ways that the research
can be conducted. One way is the research being conducted with the researchers interest as main
focus, the second way is that the research is done with the sponsor’s interest as main focus
(Schein, 1995). The distinction between those two ways is the degree of control the researcher
has over the design and the process.
Gummesson (1985) specifically points out that a person conducting action research assumes the
role of researcher/consultant, and has to balance the requirements of the two roles. The
researcher’s focus is method, hypothesis generation, report writing. While the consultant’s focus
is to solve the problem at hand, apply established methods and theory on the target organization.
Saunders, Lewis and Thornhill (2003) details 3 common themes that are present in an action
research strategy:
1. The purpose of the research – managing change (Cunningham, 1995)
2. Close collaboration between practitioners and researchers, where the researcher assumes the
role of practitioner-researcher and is affecting the change that is occurring (Eden, Huxham,
1996:75; Zuber-Skerritt, 1996)
3. The results from an action research strategy should be generalizable to other contexts (Eden,
Huxham, 1996:75). Depending on the role of the one conducting the research, researcher or
consultant, the results could focus on the refinement of theory or knowledge transfer to other
contexts (Saunders, Lewis and Thornhill 2003).
Saunders, Lewis and Thornhill (2003) detail the process of an action research strategy. The
process can be broken down into 6 steps:
1. An idea or internal/external driving force for change occurs
2. Research is done on facts and action possibilities
3. Planning of the choice of method to change
4. Implementation of the method of change
5. Monitor and evaluate the effects of the method of change
6. Revise and adjust the method for improvement and repeat steps 3-6
2.3 Data gathering
Primary data is information that has been gathered for the purpose of researcher’s topic, and can
be of quantitative and qualitative nature. Saunders, Lewis and Thornhill (2003) have detailed 3
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methods that can be used to gather primary data, however only observation and interviewing are
relevant to the author’s research report.
The three methods are: 1. Observation, 2. Interviews, 3. Questionnaires
Interviews – The process of discussion between two or more people is what best describes the
interview approach (Kahn, Cannell, 1957). Saunders, Lewis and Thornhill (2003) highlight the
value that interviews as information source could provide to research, it allows a researcher to
gather in depth information that might not have been possible with either questionnaires or
observation. It enables the researcher to develop a trust with the research subject to gain access
to data that might be relevant that the researcher might not have thought off (Adams, 1991).
Interview as a method can be approached from several perspectives, Saunders, Lewis and
Thornhill (2003) differentiates between 3 approaches:
Structured interviews – A structured interview has a set of predetermined questions that will be
asked to the research subjects, answers can be recorded in both open as well as closed variables.
Semi-structured interviews – In a semi-structured interview the researcher has a predetermined
theme they want to discuss with the research subjects. The questions for a semi-structured
interview are determinant on the research subject involved, as not all questions will be suitable
for all research subjects (Wass, Wells, 1994)
Unstructured interviews – This interview type is informal, where the aim is to gain an in-depth
understanding of both the research subject as well as the research topic (Robson, 2002). No
predetermined questions are used, the questions are open. Allowing the research subject to
answer freely in a way they determine is relevant to the questions asked.
Healey and Rawlinson (1993, 1994) distinguish between 2 different approaches:
Standardized interviews – An interview approach where the interview process is structured and
standardized, e.g. this enables different researchers to use the same questionnaire for different
research moments and generate data for comparison.
Non-standardized interviews – This is similar to Saunders, Lewis and Thornhill (2003)
description of semi-structured and unstructured interviews.
The author of this report has used both qualitative and quantitative data to conduct the research
for this report. Qualitative data was in the form of interview data with top management, work
routines for staff, reporting routines for managers in restaurants, franchise guidelines and some
information that has been exchanged with KFC Europe regarding the demand for KFC Denmark
to implement BSC. The nature of quantitative data used were annual reports, financial reports,
procurement value of goods, sell value of goods and staff performance metric reports.
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The primary data gathered by the author were from semi-structured in-depth interviews with top
management. The themes that were discussed was KFC Denmark’s implementation of BSC,
topics discussed were top managements perception of BSC, how BSC functions, and the
requirements of using BSC, KFC Denmark’s approach to BSC and how BSC will be
implemented in KFC Denmark. Secondary data used for this report were of both qualitative and
quantitative nature mentioned in the above paragraph.
Due to the sensitivity of some of the data gathered, only data that is deemed to not affect the
competitiveness of KFC Denmark will be disclosed.
2.4 Execution of the action research in this case study
This report’s author is assuming the role of a change consultant. The author will not only be
observing the change process that is to occur, but also lead the change and assist management
with the design process of BSC for KFC Denmark. The focus of the author was on the current
change process and the future effects that would derive from it, as a historic analysis would not
benefit the change nor future results.
The data for this report was gathered via the following means:
- 2 semi-structured interviews with 2 representatives from top management Bjartmar Trastarson
and Snorri Trastarson. The 1st interview was conducted 26th of March, the interview period
lasted from 10:00 to 16:00, and the 2nd interview was conducted 23rd of April. The interview
period lasted from 10:00 to 16:00. Both interviews were conducted at the office at KFC Field’s.
Name Title Interview 1 Interview 2
Bjartmar
Trastarson
CEO 26th March, 2012
10.00-16.00
23rd
April, 2012
10.00-16.00
Snorri
Trastarson
General Manager 26th March, 2012
10.00-16.00
23rd April, 2012
10.00-16.00
1st interview focused on the structure of KFC Denmark. The theme of the interview was KFC
Denmark’s current conditions, how and why the company was setup as it was. As the author was
not part of top management, the details and reasons for why KFC Denmark was the main priority
when conducting the 1st interview (Questions can be found in appendix 3).
2nd interview discussed the design of BSC for KFC Denmark. The theme of the interview was
how to design BSC for KFC Denmark, and discuss ideas for implementation and the possible
outcomes and obstacles to implement new metrics as well as the revision of old metrics. Ideas
and feedback were bounced between the author and top management to evaluate feasibility.
Some of the ideas discussed could not be implemented in the first iteration as there were
infrastructural obstacles, some ideas were postponed for future review and some were postponed
indefinitely. (Overview of questions and topic discussed can be found in appendix 4)
17
- Reading internal training documents
There are different kinds of training documents involved in working at KFC Denmark, the
duration of training and amount of training material to study depends on the type of position an
employee will undertake in KFC Denmark. Some positions, such as shift manager and operations
manager, require an employee to be knowledgeable about all positions. The author’s current
position has required the author to study all the training material available for employees in KFC
Denmark.
- Studying financial documents for the last 5 years
Public as well as internal financial documents were gathered and analyzed to assess the
feasibility, possibilities and obstacles for designing BSC for KFC Denmark. The financial
documents were mainly used to set the target goals for the financial- and customer perspective
The author’s focus during the discussions’ with top management for designing BSC were the
interest of the company, as the author has a personal stake in how well BSC will work and in the
performance of the KFC Denmark. The design of BSC focused more on KFC Denmark’s
conditions and less on the theoretical approach to how a BSC should be designed. The consultant
role was dominant when designing BSC with top management.
2.5 Credibility
Credibility concerns the subject and objective reliability of a researcher. The subjective
perspective is regarding the quality of e.g. person and trustworthiness of the researcher. The
objective perspective is regarding the quality of e.g. research conducted and credentials
(Saunders, Lewis, Thornhill, 2003). When conducting research the credibility of the author is
affected by how well their personal bias has been disclosed and presented, if the author has been
open with how their personal views might have affected the report in either method of choice,
data gathering, analysis and conclusions (Saunders, Lewis, Thornhill, 2003; Gummesson, 1985).
The author has a long professional relation and personal relation with KFC Denmark. The
author’s history with KFC Denmark is a reason for why top management entrusted the author
with managing the BSC implementation that had to be conducted. Even though the author was
not the person making the final decision in the design and implementation of BSC, the author’s
efforts were crucial in the direction surrounding BSC and during the discussions in designing
BSC.
The author’s objective is to test current theory surrounding BSC in a small organization, to test
the limits in how far BSC can be scaled down. By testing the theory of scaling BSC, the author is
aiming to provide additional knowledge surrounding the use of BSC in small organizations,
while the externality of the results can be disputed. It is not possible to make a definite statement
regarding the externality until KFC Denmark’s BSC design has been tested over a period of time.
The theory surrounding BSC is vast and detailed and has been tested and trialed multiple times
18
since its inception (Eldenberg, Wolcott, 2005; Hilton et al., 2007; Merchant, Van der stede, 2007;
Anthony, Govindarajan, 2007).
2.6 Overview
To achieve a satisfactory level of knowledge of the BSC management system, knowledge was
accumulated by studying reference literature by the founders of BSC Robert S. Kaplan and Steve
P. Norton. Additional knowledge was gathered from literature specializing in management
control systems, organizational theory and business process systems (Child, 2005; Bakker et al,
2008). As the reference literature mainly details considerations when designing and
implementing the BSC system, reference cases of implementations within the same industry and
unrelated industries were used to try to identify objectives or processes that could be generalized
to KFC Denmark’s strategy planning and implementation of BSC.
19
Chapter 3. Theory
This chapter will cover the concept behind BSC as it was described by Kaplan
and Norton, the basic idea of the importance of having a balanced ScoreCard
for performance measurement. A typical BSC design is presented. Common
discussion topics and critique regarding BSC is presented. Difficulties that can
surround a design and implementation as well as general obstacles that can
occur in all organizations, including the limitations of the BSC are presented.
An empirical reference case is presented to provide a framework for BSC in
SME.
3.1 Definition of BSC
BSC is a management control system developed by Professor Dr. Robert S. Kaplan from
Harvard Business School and Dr. David P. Norton in the early 1990s. BSC as a concept made its
debut in “The Balanced Scorecard—Measures That Drive Performance” in Harvard Business
Review, in 1992 (Kaplan, Norton, 1996). BSC is supposed to address the weaknesses and
vagueness of traditional management approaches that only focus on financial metrics. BSC aims
to provide a clear prescription as to what metrics organizations should measure, connecting
vision and strategy into clear definable linkages to integrate and communicate performance and
objectives across an organization and align strategic initiatives. When fully implemented, BSC
aligns everyone within an organization so management and all employees understand how their
performance can further the company’s strategic goals (Kaplan, Norton, 1996). It is generally
recognized that a primary goal of performance measurement systems is to promote goal
congruence and influence managers’ behavior (Otley, 1999).
BSC is a widely implemented performance measurement system. Given its widespread
acceptance and use by practitioners, BSC is well-entrenched in the management accounting
teaching literature and frequently researched by academics (Eldenberg, Wolcott, 2005; Hilton et
al., 2007; Merchant, Van der stede, 2007; Anthony, Govindarajan, 2007) (Horngren et al., 2010;
Hoque,James, 2000; Lipe, Salterio, 2000; Malina, Selto, 2001; Ittner, Larcher, 2003; Banker et
al., 2004; Othman, 2008; Wiersma, 2009; Greiling, 2010). The concept of BSC as a management
control system is not to leverage or imitate other management control systems that have
advantages in measuring isolated aspects of a company. The strength of BSc is that it
theoretically creates goal congruence among different business units within a company (Dinesh,
1998).
The implementation of a BSC system starts from four different perspectives to identify activities
that work towards different sub objectives, but towards common main objectives (Kaplan,
Norton, 1996). Performance measurement systems employed by many firms incorporate a
20
combination of both financial and non-financial metrics (Brancato, 1995; Bryant et al., 2004;
Epstein, Manzoni, 1997; Stivers et al., 1998).
3.2 The four perspectives
BSC suggests that an organization’s performance can be viewed from four main perspectives:
financial, customer, internal business process, and learning and growth. These four perspectives
are linked to the organizations’ long term strategy and competitive advantage and create a
holistic model of its strategy that allows all employees to see how their performance contribute
to the success of the organization.
Every activity within a company strives to improve the financial aspect, whether it is sales,
product mix, employee training or research & development to name a few (Maiga, Jacobs, 2003).
The BSC management control system strives to create a activities within the four perspectives
that can and will have an impact on the outcome in achieving the objectives set.
(Inspired by Norton and Kaplan, 1996: 9)
3.2.1 Financial perspective
Activities within the four perspectives encompass different strategies and actions. The theory for
financial perspective brings up 3 objectives for a business unit: growth, sustain and harvest. And
regardless of which of the 3 objectives that is used, there are 2 financial themes that drive the
business strategy: Revenue growth and product mix, cost reduction/productivity improvement,
asset utilization/investment strategy (Kaplan, Norton, 1996).
Revenue growth and product mix addresses considerations for new products, new applications
for current products, new customers and markets, new product mix and pricing strategy. Cost
reduction/productivity improvement addresses traditional considerations related to
manufacturing such as reduced unit costs, reduced transaction costs/increased transaction
channels and reduced operation expenses.
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3.2.2 Customer perspective
The customer perspective is strongly related to traditional marketing strategy of achieving a
competitive advantage (Porter, 2004) through different activities such as, finding the right target
customer group through segmentation and having different product mixes for different customer
groups e.g. high-end and low-end products. Porter (2004) and Kaplan and Norton (1996)
mentions that there are some reoccurring core metrics that all organizations use, regardless of
using BSC or other management control systems, and the measurements are: market share,
customer retention, customer acquisition, customer satisfaction and customer profitability. As
these measures are central in all strategy for long-term profitability it is expected that they would
reappear in the BSC management system, as BSC is designed to strike a balance between long
term and short-term profitability focus. Additional attributes also brought forth in “The balanced
scorecard” are the product/service attributes i.e. the quality and functions of what is sold.
Customer relationship is how a company treats its customers and how they differentiate
themselves when excluding the product or service, image and reputation deals with customer
perception and what objectives the company should work towards to display the correct image
towards its customers to achieve the company’s objectives (Kaplan, Norton, 1996, 2001).
3.2.3 Internal processes
The internal business process perspective addresses long term issues in a company strategy.
While financial perspective is mainly short term with slight focus on the long term. The customer
and internal business process perspectives focus more on long term competitiveness. The internal
business process perspective addresses the need for innovation, to be able to compete in the
future, beyond the short time frame that a focus on financial numbers that some control systems
focuses on. There are 3 key points in this perspective: Innovation, Operations and Post sale. The
activities in this perspective work as a supporting function to the customer and financial
perspective. Innovation is not only about the functions in a product or a service delivered to a
customer, but also about predicting and shaping future demands from its customers. To be able
to affect customer demand in a way that a company can gain a competitive advantage ahead of
the competition, the operation process refers to activities that are also mentioned in the financial
and customer perspective, production of goods and delivering of goods, but the focus here lies on
the company’s production and work flow and how they can improve it to deliver superior value
to its customers and in turn good return on investment. Post sale is the last process in the internal
value chain and refers to the routines and policies in place to follow up post sale activities, not
how they are performed with the customers (Kaplan, Norton, 1996, 2001).
3.2.4 Learning and growth perspective
The last perspective is the learning and growth perspective. This is the main supporting function
amongst the four perspectives and it focuses on employee capabilities, information system
capabilities and motivation, empowerment and goal alignment. Employee capabilities addresses
the importance of having competent employees that has the knowledge, skills and authority to
interact with customers, old management control systems viewed the product as the critical
22
factor and employees as an expense factor (Otley,1994; Simons,1995). But as the economy in
western nations has shifted towards a knowledge-based economy, the employee and its
intellectual capital is an important factor for the long-term financial growth, long-term
competitiveness and profitability of the company (Kaplan, Norton, 1996, 2001).
“The balanced scorecard (Kaplan, Norton, 1996)” details three core categories when it comes to
employee measurement: employee satisfaction, employee retention and employee productivity.
These are three common measurements similar to the core measures in the customer perspective.
The difficulty with these three measurements is how to define them for each organization in a
way that the metrics are relevant for the main objectives’ of the organization (Kaplan, Norton,
1996, 2001).
Motivation, empowerment and alignment are the last main categories of the learning and growth
perspective. These categories address the importance of keeping satisfied staff, as satisfied staff
will perform better in their interactions with customers, creating a circle of positivism. The first
two categories, motivation and empowerment, highlights the importance of creating a sense of
responsibility in managers as well as front line personnel (Brownell, Hirst, 1986; Brownell,
1982). Alignment brings us back to the topic of goal congruence, a common point where an
implementation of a management system can fail is the lack of alignment between personal goals
and corporate goals in an organization. If alignment between long-term personnel- and corporate
goals do not occur, then there is a risk of a BSC implementation getting gamed by staff to meet
the short-term financial goals (Kaplan, Norton, 1996, 2001).
3.3 Considerations when building a BSC
Implementation of BSC is usually performed in a top down fashion, where top management
together with managers of different Strategic Business Units (SBU) in the organization meet and
discusses to craft a vision and strategy, these targets should be ambitious but still be achievable
regardless of external factors i.e. they should not reliable on factors the company does not
control (Kaplan, Norton, 1996; Sharma, 2009; Selto, 2001). The more ambitious goals together
with top managements continued support is supposed to unleash the full potential of a company
(Kaplan, Norton, 1996, 2001).
Hence why the first step, after vision and a general strategy has been set, is to decide on the
financial goals to be reached, often called the hard and short-term objectives of an organization.
As most organizations aim to provide a good return on capital with minimal risk for the
stakeholders, whom often only focus on the return on investment that a company achieves
(Kaplan, Norton, 1996 ; Slater, Olson, Reddy, 1997). Which is why financial is one of the four
perspectives in BSC, as its importance is vital. But it’s not always beneficial to measure only
financial metrics, hence the use of four perspectives in the whole implementation of BSC
encompassing all aspects of a company (Kaplan, Norton, 1996). This is illustrated by the Return
On Capital Employed box in the diagram above.
23
The second step is to look into the customer perspective and analyze what adjustments can be
made to the current strategy to accommodate a more aggressive growth in revenue and
profitability to attain the more ambitious financial goals. It could be necessary to discard all
current metrics for customer management to create all new metrics that satisfy both the short
term and the long term interest of the company’s customer interests (Kaplan, Norton, 1996).
What BSC aims to achieve in the customer perspective is a simultaneous focus on short-term
financial interest as well as a long-term customer oriented focus. Instead of having a metric that
only focuses on new customers acquired, a more relevant metric for long term profitability
would be profitability / customer or total revenue / customer over a longer period of time
(Kaplan, Norton, 1996).
The third step is to look into how an organization’s internal business processes can be improved
to achieve a focus on long-term customer loyalty (Kaplan, Norton, 1996). When focus is on
satisfying customer demand over long periods, this will bring a different challenge than just
meeting a customer’s demand to meet the results for the next quarterly report. For example, in a
large company with divided units, interdepartmental cooperation could be a first step in
improving internal business processes to create new solutions to customers. Instead of different
departments interacting with the customer to deliver pieces of a solution, interdepartmental
cooperation would allow a company to deliver a package solution to the whole customer from
start to finish. For a small company, focus could be on the operating processes in the day-to-day
operations, creating metrics that were not measured before, it could be reduced waste generation
or reduce the time that personnel are spent idling (Ittner, Larcker, 1998; Perrin, 1996). This is
illustrated by the process quality and process cycle time box in the diagram above.
The last step is the alignment of goals. To make the individual’s goals in the organization reflect
the goals of the corporate strategy (Kaplan, Norton, 1996). Both in the short term and the long
term, this is a difficult procedure to balance, as financial metrics are the dominant carrier of
information that is easy to communicate and understand. While soft values and non-financial
metrics such as employee satisfaction and employee knowledge development are more difficult
to communicate to a company’s stakeholders (Kaplan, Norton, 1996), nonetheless they are an
important metric to measure. As knowledge is the most important resource a company has, to not
measure it or only focus on financial metrics will not create a long-term competitive advantage
for a company. A difficulty in the learning and growth perspective is to both create relevant
metrics and assign them enough weight to warrant interest from company stakeholders (Kaplan,
Norton, 1996). This is illustrated by the employee skills box in the diagram above.
3.4 How to build and implement BSC according to theory
BSC can be implemented in various ways, the authors’ Kaplan and Norton (1996) have pointed
out the need to make adjustments when implementing BSC across various organizations. Kaplan
and Norton (1996) have described a typical process when a company is planning to make use of
24
BSC. The process can be separated into two stages: first stage is the design process and the
second stage is the implementation process.
3.4.1 Designing process
Select organizational level – The first step is to decide on which organizational level to design
the BSC for, consideration has to be given if it will be a corporate wide scorecard where the
performance of all important SBUs in a company are measured, or will there be different
scorecards for different levels in the organization. In this phase, interviews should be conducted
with management in all levels of the organization.
Identify Strategic Business Unit (SBU) synergy/corporate linkages – Interviews with top
management and key division managers are made to assess whether the targets set by the
independent SBUs conflict or whether synergy effects can be achieved
Build consensus around strategic objectives – To achieve goal congruence amongst the different
SBUs, the team or individual facilitating the BSC design should first prepare material on BSC
and information regarding the company’s strategy and goals. Interviews with top management
are conducted. Afterwards the facilitator analyzes the data gathered and constructs a list with
rankings of objectives. Following that, a workshop with top management should be arranged to
create consensus by having dialogue discussing the design that the facilitator has drafted. The
decision making could be decided by voting through ballots, vocal votes to name a few methods.
The decision winner could be selected through majority votes or require the full support of the
attending management.
Selecting and designing metrics – The facilitator works together with management responsible to
select the metrics to incorporate into the BSC that aligns with the strategic goals. Cause and
effect relations are evaluated between the chosen metrics performance and results, as well as the
cause and effect relation between the 4 perspectives. It is important to review the developed
scorecards. Both on a corporate level and SBU level before finalizing the scorecards. Scorecards
can, depending on the circumstances, be developed for individuals within an organization to
allow each employee to measure their contribution to the long term strategic goals. In theory it is
argued that the compensation of all employees should be tied to the BSC, as such compensation
plans should be tied to the performance results. Kaplan and Norton have listed core measures for
financial, customer and learning and growth that are common when designing a BSC.
Core financial measures
Return on investment/economic
value added
Profitability
Revenue growth/mix
Cost reduction
Cost reduction productivity
(Source: Kaplan, Norton,1996: 306)
Core customer measures
Market share
Customer acquisition
Customer retention
Customer profitability
Customer satisfaction
Core learning and growth measures
Employee satisfaction
Employee retention
Employee productivity
Executive workshop – The facilitator assembles both top management and key managers from
SBUs within the company for a workshop to discuss all the targets that have been set, the goal is
to achieve consensus amongst all key management in an organization regarding the goals set. An
active dialogue is promoted so that all involved parties can voice their opinion and provide
feedback. The participants should agree on a time frame for the targets to be achieved ranging
from 3-5 years or more.
3.4.2 Implementation theory
An implementation plan is made after all the targets have been decided, the implementation plan
covers how to draft, communicate and finally implement a BSC.
Develop implementation plan – A plan is drafted together with key management from different
SBUs, the plan should include information about how the SBUs plan to incorporate the
developed scorecards, as well as the time frame and how they plan to anchor the scorecard
amongst employees. An evaluation time frame is discussed and decided by the participating
managers to review the results of the targets in the future.
Executive workshop – A final workshop is held with top management to gain final consensus
and approval regarding vision, objectives and metrics. Alignment of the goals of all the SBUs in
an organization is discussed, adjusted and finally approved
Communicate and implement – The final step in the implementation process is to communicate
and implement the BSC within the organization’s management system, implementation should
be done gradually over time, although it is recommended by Kaplan and Norton (1996) that the
implementation be finished within 60 days. After a full implementation has been finished, all
26
employees in an organization will be able to measure their contribution to the organization and
receive rewards in accordance with their effort.
Although change is executed with the intent of creating improvements, there is always a chance
that the employees affected by the change will fight the change for various reasons (Child, 2005).
3.5 Risks and difficulties
There are numerous examples throughout reference cases and reference literature of failed
implementations of BSC. Those cases have provided knowledge for future organizations seeking
to implement BSC that can benefit from the knowledge about the considerations and pitfalls of
BSC designs’ in other companies (Angel, Rampersad, 2005; Kenny, 2003; Dennis, 2008;
Spechbacher, 2003; Smith, 1998; Joshi, 2001; Olve, Roy, Wetter, 1997). The different kinds of
risks and difficulties have been discussed in Harvard Business Review, Harvard Business Press,
reference literature and case studies of failed implementations of BSC (Angel, Rampersad, 2005;
Argyris, 1994).
3.6 Discussion about BSC
Common misconceptions:
BSC is just another measurement system / performance measurement system
BSC can be implemented in a SBU even if higher management isn’t involved
BSC is just another management trend
3.6.1 BSC is just another performance measurement system
There exists an abundance of different methods to measure everything from financial-,
employee-, turnover-, satisfaction- and education performance to name a few. These different
measurement systems exists in isolation, it means that they exist only for a certain ecosystem in
either one department or between a few departments to measure the factor that is relevant to
them, not to drive them towards the company’s strategic goal. Companies that have already
employed a multitude of measurement systems in an ad hoc manner will of course become more
skeptics towards BSC and might regard it as “just another measurement system” (Frigo,
Krumwiede, 1999). While that statement is far from accurate when considering a proper
implementation of BSC, it is nonetheless a misconception that can be regarded as a risk when the
concept of BSC is not properly communicated to top management, all the staff and the people
that will be responsible for an implementation of BSC. When presenting BSC to top
management, it is vital to communicate BSC as a management control system to drive the
company’s strategy through every part of the organization to create goal congruence.
3.6.2 BSC can be implemented in a SBU even if higher management isn’t involved
As has been mentioned in the above paragraph, a misconception of BSC is that it is just another
performance measurement system, and that it can be implemented within a SBU without top
management’s involvement with little or none interdepartmental communication (Kaplan,
Norton, 1996). A BSC implementation that is implemented in an isolated manner locally for one
27
SBU without top management involvement would not succeed. As the measurements of the
effect on the long term and short term results of the company would not be feasible due to lack
of corporate goal congruence (Kaplan, Norton, 1996). If a SBU would decide to implement it
themselves, they would only be able to measure their achievements effects in their own unit and
measure the resource utilization within their specific SBU. They wouldn’t be able to measure if
the improvements have been beneficial for the company’s strategic goals, nor would they be able
to discern if the actions had long term and short-term beneficial effects (Kaplan, Norton, 1996).
3.6.3 BSC is just another management trend
For corporations having been victim of the trends of management and organizational systems
throughout the years, it is of no surprise if they happen to be more resistant to the adoption of
what can be perceived as yet another management system. If a company has undergone several
attempts at introducing different management systems throughout its history, future attempts at
introducing new management systems, locally or corporately, runs the risk of becoming
disconnected from the actual work processes in the organization (Child, 2005). This is in light of
past failed attempts, that there is a lack of belief in that an implementation of a new management
system is a response to an actual need and not a response to a new management trend.
Clear communication about the purpose and processes of implementing a new management
system is vital, as is top management’s commitment as they will set the strategic goals that will
foster the creation of goals in the different perspectives of BSC for the individual SBUs in a
company. It is important to have a strong continual commitment from top management, so that
an implementation of BSC is not perceived as just a temporary management trend.
In closing the above statements, perceived facts and actual facts must be distinguished. Having a
misconception about the effects of a BSC implementation will have disastrous consequences for
its implementation (Kaplan, Norton, 1996). As top management will have the impression it is
getting a management system for one purpose while its actual purpose is another, this can lead to
not only a lack of commitment and support, but also cause the organization to abandon the
management system all together (Kaplan, Norton, 1996; Child, 2005).
3.7 Critique
Bourne (2008) and Pforsich (2006) argue that one reason firms are not getting the full value from
their BSCs is that they are not implemented and used properly, which is largely due to the
difficulty managers have in properly operationalizing Kaplan and Norton's BSC.
3.7.1 Common obstacles
Even when an implementation adheres to all the considerations that are outlined in theory, there
is still the possibility of failure as the company operates with the new management control
system. Failure can happen because of several factors, the most common are outlined (Kaplan,
Norton, 1996):
28
Initial phase has momentum, however there is no continuous force to review and
reevaluate the BSC implementation
Higher management delegates the responsibility for implementation to lower
management
Lower management attempts to implement BSC on its own
BSC is viewed as another management fad
Why fix what isn’t broken
Information overload
3.7.2 Lack of continuous support
A common pitfall that organizations fall into when trying to implement any management system
is the lack of continuous support from the unit that is responsible. A key component of BSC is
the creation of lagging and leading indicators that allows an organization or individual SBU to
keep track of its short-term actions, to see whether the effects are leading to an improvement that
brings it closer to the strategic goals of an organization. BSC like most other management system
has to be periodically reviewed when either the external factors are radically changing or when
the organization’s SBUs actions aren’t leading to the expected results. Top management has to
show support and commitment when implementing BSC by continuously reinforcing that actions
by SBU’s should lead to results that are aligned to the corporate goals, otherwise they should be
reevaluated and depending on the results, actions should be taken within the SBU’s to analyze
why actions aren’t leading to the desired results or reevaluate if the goals are feasible or not.
3.7.3 Responsibility for implementation is delegated to lower management
Another obstacle that is detrimental to a proper implementation of BSC is when top management
decides to implement it, however after the initial start, the responsibility and continuous
commitment is solely left to lower management (Kaplan, Norton, 1996). This can occur when
top management hasn’t understood the structure of BSC as a management control system. When
BSC hasn’t been clearly communicated to top management, whom then believes that they decide
on the implementation, but leaves the strategic goal creation to lower management, whom often
lacks the authority to decide on corporate wide strategic goals (Banker et al., 2004; Malina, Selto,
2001, 2007). When top management delegates responsibility without authority it shows a lack of
support and commitment which will can lead to disconnect between implementation and actual
work processes in the lower parts of the organization (Kaplan, Norton, 1996; Child, 2005). Top
management must be the main authority when BSC is to be implemented, as they have authority
over all divisions and can exercise their authority over SBU’s that aren’t performing (Kaplan,
Norton, 1996). If one SBU would try to exercise authority over another SBU when failing to
implement BSC, their orders would not carry the same authority, and would even risk being
ignored because lack of authority (Don, Boehner, 2007).
3.7.4 Lower management attempts to implement a management system themselves
This obstacle is more related to implementation of management systems in general, but the
reason this is relevant, is because BSC requires top management to direct all the SBU in an
29
organization towards a common goal. If lower management would attempt to implement a
performance measurement system that is unrelated to other units and without top management
coordinating the SBU’s, the lack of goal congruence can lead to different SBU’s performing
actions that don’t lead to an overall improvement for an organization in neither the short or long
term (Kaplan, Norton, 1996).
3.7.5 Information overload
With todays’ modern IT-systems, finding ways to measure has become less of an issue and
measuring the right thing has become the critical topic. Measuring too many metrics leads to
unnecessary administrative work for all involved departments in an organization (Lipe, Salterio,
2000, 2002; Ridgway, 1956). And it will also be difficult for top management to get a clear
relevant picture of the organizations goals and the progression (Ridgway, 1956). A risk is that
top management chooses to ignore the non-financial metrics and only focus on the financial
metrics when there are too many metrics that are unrelated to the long-term competitive
advantage of the company. This would destroy the purpose of BSC and create an imbalanced
scorecard (Example, appendix 7)
Companies that have tried numerous different control systems usually suffer from a worse case
of information overload, as the leftovers from the different attempts are still lingering in the
organizational system (Burney, Matherly, 2007). When an organization wants to use BSC, an
important aspect when it comes to relevant metrics is to start from scratch and identify relevant
metrics, and then weigh them against relevance and effect generated to reach the strategic goals
of the organization.
3.7.6 Resistance to change
Although change is executed with the intent of creating improvements, there is always a chance
that the employees affected by the change will fight the change for various reasons (Child, 2005).
While this is less relevant now, all management control systems that is planned to be
implemented can encounter resistance within an organization, especially those that has had
multiple failed attempts at implementing management systems (Child, 2005). When
implementing BSC it is vital to communicate to the organization that is not a management
system for an isolated SBU or some SBU’s in a company. It is vital that top management and
lower management understand that it is a corporate wide strategic management system to create
goal congruence and transparency. That allows everyone in an organization, when properly
implemented, to view how their actions progresses the company towards its strategic goals
(Kaplan, Norton, 1996). So to avoid an implementation of BSC becoming treated as yet another
management system for one or few SBU’s, it is vital to communicate the inter-relationship
between the different perspectives to the units involved so that everyone thoroughly understands.
That each action executed by one SBU affects the general outcome for whether the company can
achieve its strategic goals or not.
30
3.7.7 Preserving status quo
There is a common argument for organizations or parts of organizations that are resistant to
change, that line is “don’t fix what isn’t broken”. This line is often repeated by employees who
can’t relate to the change in organization or operations when they perceive everything is working
smoothly. The employees however often don’t understand corporate strategy and in turn cannot
relate to why change is occurring when their day-to-day tasks are proceeding without
complications. Many organizations have routines and localized goals setup for employees, but
it’s rarely communicated why the goals are set, and even rarer is how they relate to corporate
strategy.
3.7.8 Too much focus on financial metrics
Research on the strategy link indicates that most BSC firms are selecting diverse combinations of
measures for their PM systems (Sandhu et al., 2008; Perrin, 1996). This can however become
cumbersome if care is not exercised when evaluating the value of selected metrics. The risk of
information overload with irrelevant information becomes and inherent risk in such scenarios
(Cummings, 2004). Another related problem is the difficulty in determining clear cause and
effect relationships between chosen metrics if they appear conflicting, this can diminish the
purpose of creating goal congruence and instead create confusion regarding resource allocation
(Kaplan, Norton, 1996, 2001). As such, an inherent problem when designing and implementing
BSC for an organization, is the focus and tradition of only using performance metrics that have
focused on financial metrics. The issue with financial metrics is that they can only reveal historic
performance and does not provide any information regarding future performance or development
(Merchant, 1985; Chakravarthy, 1986; Schoenfeld, 1986; Dearden, 1987; The AICPA, 1994)
Kaplan, Norton, 1996). Nørreklit (2000) mentions that vagueness in cause and effect
relationships are due not only because of vagueness in design, but also due to Kaplan and
Norton’s ambiguity when explaining BSC. There is an inherent risk to only focus on financial
metrics if the correlation between perspectives cannot clearly be shown to drive financial
performance (Johanson, Skoog, Backlund, Almqvist, 2006). A lack of relevant causal
relationship between metrics in the four perspectives could lead to top management not paying
attention to any other metrics besides financial metrics (Kaplan, Norton, 1996; Nørreklit, 2000).
In a survey conducted by Hackett Group (2004), Hackett Group concluded that less than 20% of
companies that had implemented BSC had mature ScoreCards that generated value, furthermore
the BSC implementations’ in Hackett Group’s survey made use of too many metrics and with
heavy bias towards financial metrics.
3.8 Limitations
Reference theory in BSC has mainly focused on large corporations (Tennant, Tanoren, 2005),
while its application on SME hasn’t been researched as thoroughly (Tennant, Tanoren, 2005). As
there are considerable differences between how large corporations and SMEs operate, an
eventual implementation of BSC in a SME has to be adjusted to suit the conditions a SME
31
operates in, this has been acknowledged by Tennant and Tanoren (2005), whom argue that SME
have to operate on a more short term basis due to the competitive conditions of SME.
A factor that affects the implementation of BSC is that companies in hyper competition will have
to make rapid adjustments within different units in an organization. Changing goals too often is a
condition that Rompho (2011) mentioned that could dilute the value of using BSC, as that would
make it difficult to anchor the targets within the units that will make use of them. There is also
the problem of re-clarifying cause and effects relationships, spending time adjusting metrics will
mean a company is spending more resources organizing units than performing activities to
generate revenue.
A limiting factor that is opposite to the inflexibility of BSC is that Kaplan and Norton (1996)
promotes double loop learning when designing BSC, setting evaluation milestones to revise and
improve the implementation of BSC. When designing BSC, the importance of setting relevant
metrics that allows a company to gain long term competitive advantages require time to
communicate to all levels in an organization as well as to anchor the targets that have been set.
Setting evaluation and revision milestones too frequently will make it difficult to anchor
adjustments targets in an organization. While setting milestones too far in between would risk a
company adhering to obsolete metrics in a rapidly changing environment. This ambiguity from
the authors’ causes BSC to appear both rigidly limiting and flexible (Nørreklit, 2000).
3.9 Empirical reference case of why BSC failed in a SME
The author’s experience of finding empirical reference cases of BSC implementation in small
companie, is that data and reports are scarce and not something that is readily available (Rompho,
2011; Andersen et al., 2001). This could be attributed to several factors:
The financial resources required to evaluate and implement BSC in small companies might
outweigh the proposed benefits (Hudson et al., 2001). The usage frequency of management
control systems in small companies might not be a common occurrence. There is also the
possibility that management in small companies do not want to share the results of an
implementation with outsiders, similar to the control desire that has been displayed in KFC
Denmark regarding power delegation.
For this report the author has used an article conducted by Nopadol Rompho (2011) whom
performed a case study of a failed BSC implementation in a SME. Rompho (2011) analyzes the
underlying reasons why their implementation failed, and attempts to make generalizations that
could occur in other BSC implementations in small companies. Rompho (2011) identified two
key factors for why a BSC implementation in SME fails.
3.9.1 Design failure
This focuses on the use of metrics in the organization, as the failed case study had imbalances in
its usage of metrics amongst the different perspectives. There was also the problem of having too
many metrics and not having identified relevant metrics that would further the company’s goal.
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When there are too many metrics to adhere to, it creates confusion between which strategies that
are best suitable to further the company’s goals, as there can be conflicting results when striving
to pursue too many metrics.
3.9.2 Process failure
It can be noted that a common reason for the failure of a BSC implementation is in during the
implementation process (Kaplan, Norton, 2001)
The failures in the implementation process were due to:
Lack of senior management commitment
Too few individuals involved
Keeping the scorecard at the top
Overly long development process
Treating BSC as a one-time measurement project
Treating BSC as a systems project
Hiring inexperienced consultants
Introducing BSC only for compensation.
The key underlying factor for the failures in the implementation process were lack of open clear
communication within the organization (Rompho, 2011).
3.9.3 Externality
The key factors that caused the failure identified by Rompho (2011) are generalizable as they can
occur within any organization, and most of them are similar to the risks and difficulties that have
been mentioned by Norton and Kaplan (1996) in their book “The balanced scorecard: translating
strategy into action”. It can also be concluded that implementing BSC in a SME is radically
different than implementing it within a large organization, as the need for quick adjustments to
maintain a competitive advantage is essential.
Factors that Rompho (2011) identified that are can be generalized to the KFC Denmark case are:
Too few measures in some perspectives, imbalance between critical financial and non-
financial metrics
Not all metrics are fully relevant for the organization to reach its strategic goal
It was revealed during the case study by Rompho (2011), that even if the organization actually
succeeded with the implementation according to the pre-requirements in theory. There was still a
possibility that an implementation of BSC can fail. The cause for this case was that the metrics
set were readjusted too frequently to be of any use, making obsolete before they could be used to
gauge the performance of the units in the company and the company as a whole. Kaplan and
Norton (2001) have highlighted the importance of having relevant consistent metrics over a
period of time, to not risk having to keep the design process running indefinitely.
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Chapter 4. Current conditions of KFC Denmark
This chapter will cover a detailed analysis of KFC Denmark’s current
conditions, ranging from management structure, corporate vision to employee
policy. The current condition will provide a basis for what possibilities are
available for KFC Denmark’s BSC design.
4.1 About KFC Denmark
Since the KFC franchise in Denmark started as a wholly owned family company it has operated
with a semi ad hoc like structure since its founding. While there is a traditional formal structure
of director, managers and controllers, responsibilities and authority over the operations of its
business units slightly overlap between all the different members of the family. While this might
sound like a matrix like organizational structure, with shared authority and formally shared
responsibility across different business units. The distinction in this case is that formally
everyone has a specific role with certain tasks, responsibility and authority connected to that role,
Whilst the actual operations consists of everyone being able to assume a jack-of-all-trades role.
The company has grown organically since its inception. From the author’s understanding of the
current and future plans regarding expansion, there are currently no plans to grow through
merger, acquisition or joint ventures.
To get a proper understanding of the structure of KFC Denmark, the author has conducted
interviews with the top management, CEO, CFO, Operations manager as well as the warehouse
manager. The topics that were discussed during the interviews were:
The company’s current situation
Strategy, long term and short term goal
Management structure, chain of command
Human Resource strategy
Metrics used, underlying reason for selected metrics
The interviews were conducted with open questions to create a dialogue and deeper
understanding of how KFC Denmark operated, and the background reasons for how KFC
Denmark has arrived at their current position. The interviews were conducted on two occasions
and the first focused on how the company is operating, the second focused on the change that
KFC Denmark was going to implement. The questions can be found in Appendix 3, 4.
4.2 Vision and strategy
As it is a wholly owned family company and having grown organically, one cannot expect the
same formal structure, rules and guidelines as a large enterprise that one can encounter when
34
reading reference literature and reference theory books about BSC (Ward, 2008). The strategy or
main focus of the company is still to grow organically by accumulating profit from the
established restaurants. Expansions to new locations are financed by a mix of company capital
and loans from financial institutions. There is currently no fixed target for where and when the
company will open up new restaurants, nor is there any set time frame. The tactic for selection of
a location are evaluations of the locations customer potential, estimated time for brand to
establish itself, return on capital employed to name a few. KFC Denmark currently has no set
target to open a fixed amount of new restaurants per year instead it evaluates the possibilities as
they arise.
4.3 Management structure
An illustration of the formal management structure can be found in Appendix 1.
In KFC Denmark, top management handles most decisions regarding the company, with little
decentralization of authority. This is because the company is still small enough where top
management is able to exercise its direct supervision over most of the day-to-day operations.
Some parts of the operations are handled individually by the individual restaurant-managers.
Each individual restaurant is treated as an individual Strategic Business Unit (SBU) and in turn
carries a certain level of responsibility when reporting to top management about financial
performance and non-financial performance. The different kinds of decisions are divided into
centralized and decentralized.
Centralized decision-making
Procurement sources
Hiring of staff
Work processes
Central warehouse
4.4 Procurement sources
Procurement of goods is vital to the quality that KFC Denmark delivers to its customers and can
be a complex process, hence why KFC Denmark has decided that the procurement process
should be done by top management. KFC Denmark is free to procure goods either from other
KFC suppliers in other countries or from local suppliers in Denmark, as long as the quality of
goods delivered from the supplier meets or exceeds the standards that KFC Europe has set up. As
such KFC Denmark has a mix of suppliers, both domestic and international.
4.5 Staff recruitment
As the staff is the front line personnel that meets and greets all the customers, it is also the
service staff that will have the most impact on KFC Denmark’s long-term success. With some of
those considerations in mind, and also because of the importance of having a centralized unit for
human resources, the hiring and firing of staff is also done centrally by top management. This
35
also removes the risk of an operations or shift manager in a local restaurant hiring friends or
acquaintances that aren’t suitable to work in a service industry. Having the human resources unit
centrally administered also removes redundancy in a small organization as each local restaurant
doesn’t need to spend time and resources evaluating different candidates for each restaurant.
4.6 Work processes
As fast food franchises have strict control quality standards that all franchise licensees must
adhere to. The day to day work of the employees in the restaurant is centrally decided by KFC
Europe, with localization done to adhere to specific laws in each country. As such there is no
difference between how food is prepared and served in either KFC franchise in Europe. The
work processes are carefully detailed and must be read by all front line employees so they
understand the importance of hygiene, freshness and quality.
4.7 Central warehouse
The central warehouse is under the supervision of top management. The suppliers are located
both domestically and internationally and the choice of supplier depends on regular procurement
factors such as price, quality, reliability, delivery time, freshness.
4.8 Decentralized decision making
Staff scheduling and staff rotation
Purchase amounts from the central warehouse
4.9 Staff scheduling and staff rotation
Each restaurant manager manages their own staff, from scheduling to staffing of personnel. As
the manager in each restaurant has the most knowledge about customer volume, personnel
efficiency and personnel culture. It is most suitable that they should decide who will be working
in the restaurant at any given time. This also relieves top management of having to engage too
much in day-to-day operations and focus more on strategic issues. While staffing is done locally,
it cannot deviate too much from a given maximum and minimum limit of how many personnel
should be working in a restaurant. As personnel costs in Denmark are very high, the cost of
adding one more worker for a day significantly affects the profitability of a restaurant. As such
there is a slight limit to how much freedom the operations manager of a restaurant has.
4.10 Purchase amounts
As each restaurant manager have the best knowledge about customer volume in each restaurant,
it is most logical that they have the best knowledge about the amount of goods that are sold each
day. In turn they can make the most qualified decision about the amount of goods to purchase
from the central warehouse. All the managers order their goods from the central warehouse. Top
management can provide assistance to restaurant managers if requested.
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4.11 Staff policy
Topics covered under this headline are:
Staff training formality
Staff career
Staff rewards and incentive
Staff performance
The fourth perspective of BSC covers learning and growth for employees, which is essentially
employee empowerment, incentive systems, employee training and employee performance in
KFC Denmark’s case. To properly understand KFC Denmark’s situation the author inquired
KFC Denmark’s top management regarding how the current employee strategy is constructed.
As staff policy forms the basis for constructing the incentive, empowerment and reward system
when implementing BSC, it was important to understand the current staff policy to identify the
gap between the current policy and proposed future policy, as well as the metrics and measures
involved to measure how well the staff adheres to the training policies when performing the daily
operations.
4.12 Staff training formality
Currently KFC Denmark trains its personnel by providing hands on training. The employees are
guided in the tasks they are to perform, and are also instructed to perform them a few times in
front of a supervisor to clear out any uncertainties. Besides the hands on training, the employees
also have to clear a test and a basic hygiene course mandated by the department of health in
Denmark. There is no system at the moment for registering and reporting each workers
competence to external stakeholders, as such it is up to the operations manager in top
management and the local restaurant managers in each restaurant to keep track of who has the
competence to work in what position. During the interviews, it was clear that this was something
top management intended to change.
While cash register personnel only have to understand their tasks and clear the test related to
their position, a supervisor or restaurant manager has to complete the training and tests for all the
positions in a restaurant. As the added responsibility will sometimes require the manager or
supervisor to move between positions depending on how busy the day is, it is necessary that they
have a complete understanding of all the roles in the process chain.
4.13 Career opportunities
There are 3 levels of employment in the local restaurants: Employee, which is the basic position
working at the register as cash personnel or working in the kitchen as food chef. The second
level is supervisor, with added responsibility for the restaurants performance. The third level is
operations manager of the restaurant, with full authority and responsibility of scheduling
37
employees, the restaurants overall performance and purchasing of goods from the central
warehouse. The decision of who will be promoted is done centrally as part of the human resource
strategy of KFC Denmark. The higher levels of the hierarchy in KFC Denmark are currently
mainly held by family members, relatives and close friends.
4.14 Staff rewards and incentive
There are currently two reward systems in place for operations managers in restaurants. The first
reward is a bonus to the monthly salary if sales in their respective restaurant exceed a
predetermined amount each month. The second bonus is also a bonus to the monthly salary, but
with different thresholds and different metric. Instead of just measuring sales, the bonus is tied to
the sales / total workers wage per month, with a different bonus amount depending on which
threshold is reached.
4.15 Staff performance
KFC Denmark currently measures it staff performance with the help of an external partner, the
process is similar to retailers employing mystery shoppers. This method is due to the licensing
agreement with KFC Europe which requires the performance to be measured by an external
company. KFC Denmark currently has no internal method to measure the employees’
performance, and hence solely relies on financial metrics and the report compiled by the external
partner.
The external partner makes anonymous unannounced visits to a random KFC restaurant and acts
like a regular customer, making a purchase and using the facilities in the restaurant. After the
whole process of entering the restaurant, purchase, exit has been finished. The representative
from the external partner will then compile a report assessing factors affecting the score in the
report. The report is called CHAMPS (Cleanliness, Hospitality, Accuracy, Maintenance, Product
Quality, and Speed) and is sent to top management in KFC Denmark as well as KFC Europe.
KFC Europe uses CHAMPS reports to assess the performance of the KFC restaurants across
Europe. Hence CHAMPS scores are of high importance is when KFC Europe assesses a
licensee’s performance in maintaining the KFC brand.
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Chapter 5. Designing and implementing BSC in KFC Denmark
This chapter covers the design of KFC Denmark’s BSC and the planned
implementation of BSC. It will also cover the planned changes that will occur
through the 1st and 2
nd iteration of BSC. The discussion between tradeoffs
between the choices considered and choices made is presented.
5.1 Discussing BSC design
This headline covers topics that were considered when discussing the implementation process of
BSC in KFC Denmark, but that were left out of the final implementation by management due to
several factors which will be detailed below. A second headline will cover the process and
structure of the implementation of BSC that KFC Denmark chose to execute.
When the author was discussing and drafting the design of BSC together with top management
in KFC Denmark, the focus was on adjusting theory to practice. This could potentially lead to
KFC Denmark’s BSC design not adhering to the BSC design explained in theory. When
structuring the implementation process of BSC for KFC Denmark, the theories mentioned above
were simplified and explained to management in layman’s terms so that any gap between
management and the author could easily be bridged. As the implementation process of BSC is
not something that is accomplished on the first try, several meetings and discussions with top
management was held to detail how BSC could be implemented in KFC Denmark (Questions are
detailed in appendix 3, 4). Part of the process of was emphasizing the importance of goal
congruence and how they establish the fundamentals for a successful or unsuccessful
implementation.
A possible method for crafting KFC Denmark’s BSC implementation was to make use of
prototyping (Larsson, 2004). This would theoretically enable top management and all the staff to
work together on a model for how it could work. This would be less risky for management as the
model is evaluated and improved as input and feedback is continuously provided over time, and
possible losses due to miscommunication, and risks are tried in the model before implemented.
However KFC Denmark’s current condition is not suitable for prototyping for its first iteration of
BSC due to:
Time constraint
Management’s reluctance to involve staff in the development process
Lack of metrics
Lack of knowledge
However prototyping was suggested as a method when the milestones’ for evaluation and
improvement were reached. That would allow management to get familiar with the changing
39
process that implementing a continuously evolving management control system entails (Larsson,
2004). Rolf G. Larsson (2004) has presented various ways of developing BSC with prototyping
that would allow for a more complete approach, but also require more resources and time, which
the first BSC iteration did not have room for. However for KFC Denmark’s 2nd
iteration of BSC
it would a method of consideration. But that would also be dependent on management’s
willingness to use more time and resources to have large improvements or small incremental
improvements. It might also open the door for more employee involvement with the possible
effect of increased satisfaction as it is designed by all involved parties.
As explained under the theory headline above, the process for implementing BSC is to have a top
down approach when presenting it to top management. As understanding and support within
higher management is another crucial factor for implementing BSC. Several drafts were
considered for each of the four perspectives and pros and cons were weighed against the
resources needed against the time available to implement the drafts Questions discussed
throughout the whole process of trying to set goals, targets and method for the different
perspectives can be found in appendix 4.
5.2 Crafting a vision
First, management was enquired whether
they had any vision for KFC Denmark.
Currently there was no vision that was clear
within the organization. Several
suggestions were considered, emphasis was
made on simplicity as it would have to be
easy to communicate (Senge, 1998). In the
end management decided that “The best
fast food chain in Denmark” would be the
most suitable for KFC Denmark.
Afterwards the process of setting goals,
targets, methods and linking the different
decisions together to display the goal
congruence effect generated could be
started (Bartlett, Ghoshal, 1994). A strategy
map was made while discussing with top
management, strategy map can be found in
appendix 6)
5.3 Designing KFC Denmark’s BSC
After defining the targets of KFC
Denmark’s design of BSC, an analysis was
done balancing the tradeoff between
40
measuring more metrics in relation to the value of data received. This was used to assess the
value of difference in administrative work load, and was dependent on how drastic the changes
proposed and decided upon would affect the daily operations for the different layers in the
organization.
5.3.1 Strategic goal
The first step was to establish new concrete strategic goals, the company previously hadn’t set a
clear strategy that directed its efforts, and the aim of the company was mainly to turn an annual
profit. With focus directed on generating enough profit to sustain the company over time. No
decisive decisions were made to as how the net profits generated would be invested or towards
what activity the further investment could generate positive Return on Investment. Strategic
goals should be long-term to allow top management to direct its short term activities and their
results towards a few clear goals, as such several possible long-term goals were proposed, as
well as the plausibility of the targets. Several suggestions were discussed, focusing mainly on
large long-term strategic targets that required large capital investments or activities whose effects
would drastically affect the company’s situation (Danny, 2006). Topics suggested and discussed
between the author and top management, were opening of new restaurants, acquiring of a new
license to expand into new markets, market share increases. The degree of commitment to the
topics discussed varied as some of them were perceived to be too vague to be able to properly
asses for now.
The strategic goals for KFC Denmark for this implementation of BSC were decided for a 5 year
period and it encompasses the following strategic targets:
Two definitive capital investments, as top management decided that the opening of 2 new
restaurants would be a reasonable long-term goal.
A possible expansion into new markets if a license can be acquired.
Tripling the current market share, measured in company revenue/industry revenue
Considering the company’s growth the past few years it was decided by top management that
growth targets above these mentioned goals would be too ambitious, as top management has yet
to get accustomed to using BSC as both a management system as well as a control system. As
mentioned in strategic goal, top management will start to measure new metrics to
5.3.2 Financial perspective
The second step was to establish new financial targets for the company, as KFC Denmark
previously operated mainly with the goal of achieving profit, without a clear target of how much
profit was to be achieved or what margins to reach. During the interviews with management,
information was gathered regarding the revenue and profit from the last few years. Margin and
average margin measurement was something that was brought up, but it was a metric that the
company currently didn’t measure. It was suggested by the author that the company starts to
measure average margin, as the margin data on each product was already readily available
41
according to management. It was suggested by the author to top management that financial goals
should encompass revenue, margin and cost targets, as are all related to the final profit generated
by the company’s profit units. The current situation of the company only focuses on making sure
that the daily/weekly/monthly operations exceed the costs for the target time period.
It was suggested that revenue goals should focus on growth that at least meet or exceed average
growth goals achieved in the past few years. Considering that a growth target below the average
of past years isn’t feasible since the company had opened new restaurants these past few years.
As mentioned in the above paragraph, the company currently didn’t measure average margin in
the daily operations, it was suggested that a margin goal should be included in the financial
targets from day 1 as the value of that information provides relevant information for how
promotion campaigns affect the profitability of the company. It was also suggested that the base
margin of comparison should be last fiscal year’s average revenue, and that the target should be a
modest growth as top management noted that a small company such as KFC Denmark have
difficulties pushing margins further than they currently have now.
It should be noted that there is a theoretical minimum and maximum for how much margin that
can be achieved per sales. As top management explained, some goods’ margin can’t be adjusted
as they can’t freely select whom to procure the goods from, another example is that the margin
difference between some products are quite large and that an increase in average margin would
have to happen by increasing the sales of high margin goods compared to lesser high margin
goods even though they aren’t substitutes.
The third financial metric discussed was expenses, as expenses in the form of rent, salary, waste
disposal and goods procurement increases on an annual basis. Controlling expenses for a small
company is a crucial component. Hence it was brought up which part of expenses KFC Denmark
thought would be most reasonable to achieve, to reduce expenses on an annual basis or control
the increase in expenses within a cost spectrum. After having discussed possible ways to adjust
expenses it was decided that keeping price increases within a price spectrum would be more
reasonable when bearing the long term strategy in mind when discounting the capital investment
of opening a new restaurant. As opening new restaurants while reducing expenses, and invest
with the company’s capital reserves didn’t seem feasible to top management.
Besides those three main financial metrics, it was discussed whether top management currently
used any other relative metrics e.g. revenue/employee, profit/employee or profit/restaurant.
Several relative metrics were suggested and top management noted that some of the relative
metrics discussed would be valuable to start measuring, however it wasn’t something that whose
growth goal could be decided for this implementation of BSC, as it wasn’t something that the
company had used before.
42
The financial targets decided upon by top management were to set growth targets to:
Annual revenue growth of 10%
Annual margin improvement of 0,35%
Annual cost increases within 2-3%
Annual profit increase of 5%
As explained in the considerations-financial goals headline, KFC Denmark currently doesn’t
measure a lot of metrics that top management considered useful. As such other metrics proposed
will not be implemented in this revision of BSC. However top management decided to find ways
to start measuring some of the other metrics proposed.
5.3.3 Customer perspective
When reviewing reference literature and articles about successful and unsuccessful BSC
implementations. Those cases usually involve large corporations in the USA that have ways to
measure customer satisfaction, retention rate, repurchase rate etc. Many of the companies
mentioned in reference cases usually have a share that are private consumers and a share that are
corporate clients (Kaplan, Norton, 1996)
When discussing targets for the customer perspective with the top management of KFC Denmark,
they were inquired whether they had tried to measure customer satisfaction in the past and
whether the data generated proved to be of any value. Top management mentioned that they had
tried to measure customer satisfaction in the past in all the restaurants using a survey where
customers could rate their satisfaction regarding the food, service and restaurant quality as well
as write an open comment for critique or praise. The survey was handed out to all customers in
all the restaurants. However when compiling and analyzing the results from the survey, top
management considered the data to be of low value that didn’t give them enough useful
information that could generate activities that could improve the company’s customer
satisfaction.
Another aspect that is vital to mention, is that KFC Denmark has no way to measure regular core
values in the customer perspective such as customer retention rate, customer repurchase rate.
Top management commented that due to the nature of the fast food industry where customers
expect quality service, quality food and fast service, there simply aren’t optimal conditions to
register customers and measure who are returning customers and whom are new customers. Any
delay in delivering quality to customers would generate more bad affects compared to the data
generated in this case.
As such the common core components of BSC (Kaplan, Norton, 1996) had to be revised for this
implementation. Since the customers are mainly anonymous, in the sense that the company can’t
tell if a purchase has been made by a new or current customer, the proposed metrics for
measurement in this perspective should be focused on transaction volume, average sum of
transactions, margin per transaction, average CHAMPS score. These metrics should be able to
43
provide insight to top management to how the customer perspective is developing, as to whether
the customer base is shrinking or increasing when analyzing transaction frequency.
The targets that top management chose within the customer perspective were:
Annual transaction volume growth of 2%
Annual increase in value per transaction of 2-3%
Achieve an average score of 75 in the CHAMPS report
It was proposed to top management that they measure average margin per transaction to pinpoint
the average revenue generated for each sale. However, there was currently no way for
management to measure either margin/day or margin per sales, so this metric would be
postponed until proper infrastructure was available.
5.3.4 Internal business process perspective
According to top management, the daily operations in KFC Denmark is strictly regulated by
KFC guidelines established by the KFC headquarters in USA that then has been passed onto
KFC Europe. This means there is little to no possibility to affect the actual work process amongst
the restaurants, if there is an off chance that a local restaurant manages to develop an
improvement in a work process, it can be submitted to KFC Europe for evaluation, however it
will still be a regional solution until it is officially endorsed. Top management mentions that they
find it difficult to find further ways to improve either the work flow or work process, as KFC
Denmark themselves have tried some small adjustments according to their local conditions to
improve the work flow as well as reduce the overhead in the work processes. As such it was
difficult to propose an improvement target or a growth/reduction target for this perspective.
Some suggestions were made that somehow overlap with the customer perspective, the first
suggestion was the complaint rate in regards to customer service related to slow service. The
second suggestion was successful conversion rate of complaints from customers, which means
that if e.g. 30 customers complains, at least a certain percentage of them should be satisfied with
the compensation offered to them. Another suggestion was to separate complaints related to
customers purchasing for consumption in the restaurants and customers purchasing for take away,
although the work processes to deliver quality food and service to the customer in both cases are
the same.
Top management decided that for this perspective it decided to set the targets at
0% complaints related to poor or slow service
95% complaints conversion rate
0% errors in delivery
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5.3.5 Learning and growth perspective
After having discussed the implementation process and possibilities with the management of
KFC Denmark, it became clear that some essential parts of a fully functional implementation of
BSC were not possible in KFC Denmark. There are several factors weighing on this opinion, the
first factor is the industry that KFC Denmark is active in, the second factor is the corporate
culture in Denmark, the third factor is the degree of centralized/de-centralized control demanded
by top management.
The fast food industry, rarely or never have bonus systems for its front line staff. There are
exceptions that operation’s managers or shift managers have received some kind of bonus tied to
the performance of the profit units they work in but the bonus systems rarely encompass all front
line staff (Bakker, 2008). The fast food industry mainly employs youths and students for various
positions (Tudor, 2011), full time as well as part time employees, for a few years work. It’s an
industry where few people pursue a full career, working from the front line to top management.
As such KFC Denmark doesn’t consider a bonus system tied to target goals encompassing all
employees a viable alternative for them.
As has been mentioned under the Theory headline, that BSC is meant to bring everyone amongst
the working staff towards a common goal by creating relevant goals for different levels in the
organization with a proper level of empowerment to the staff. However, after discussing the issue
several times with management, it is currently unlikely that any change in empowerment will
occur in the implementation of BSC at KFC Denmark. Under the staff rewards & incentive
headline are the details of the current reward structure in KFC Denmark.
To create empowerment within the whole organization amongst all employees, it was discussed
whether a reward and incentive structure that covered all the staff working in the restaurants
could be implemented. Possible ways discussed to empower the staff working in the restaurants
would be to create a bonus system with revenue targets that all the staff were part off. Coupled
together with more staff training about sales and customer relations it would make the staff more
motivated to put in the extra percentages to create fully satisfied customers. This could drive an
improvement in sales that would benefit both the company as well as all the staff working in the
restaurants’ that met the revenue targets.
Another way to create empowerment amongst employees was to tie a reward system together
with reduced waste generation coupled with waste reduction targets. An initial estimate of waste
generated per day/week/month from all the restaurants was drafted, as well as the product mix of
the waste generated. An estimate of the losses incurred by the waste was then made with the
draft and shown to management. A suggestion of tying rewards to a continuous flat reduction in
waste generated was mentioned, the reward amount would then be tied to the costs saved by
throwing away less food. A flat reduction in waste generation would allow the company to
45
reduce the waste generated which in turn would reduce the amount of food wasted and increase
the overall revenue in the company as the food that used to be thrown due to overproduction at
the wrong time, can now be produced at the right time and sold to customers which would then
fulfill two goals, the first being reduction in waste generation, the second goal being increased
revenue for the company.
A proposal indirectly related to the proposal of reduced waste generation, was a proposal to
increase the environmental awareness amongst the staff within the company by communicating
out that KFC Denmark was aiming to reduce its carbon footprint by reducing waste. The effects
that were hoped to be achieved when discussing this topic, was to 1: to improve employee
satisfaction/well-being, this would create positive spillover effects into the employee turnover
rate, reducing the amount of personnel quitting KFC Denmark on an annual basis. The second
effect would be to display KFC Denmark as a proactive company seeking ways to reduce its
carbon footprint, a secondary effect of displaying KFC Denmark as a green company would be
to create attention and publicity. As KFC Denmark, by their own words, have stated that KFC is
still a relatively unknown brand compared to the common fast food brands McDonalds, Burger
King and Sunset Boulevard, any positive publicity would just work to strengthen the brand.
Management was given some time to consider if these two proposals would be possible and
suitable to implement in KFC Denmark. Management mentioned that the use of bonus incentives
are rare in Denmark and even more rare in the fast food industry, if there would be bonus
incentives it would only encompass the operations managers and top management. As such
management were reluctant to expand the current reward and incentive plan to cover all the staff
in the restaurants, as they thought the structure would create opportunism in the staff, affecting
their working behavior that would result in them working towards a bonus target and not
customer satisfaction. Another factor that management thought didn’t weigh towards the benefit
of the draft proposals was that KFC Denmark currently didn’t measure some of the numbers
required in the proposed drafts. For example to be able to tie reward with reduced waste
generation. Management would first have to introduce the routine of measuring waste into the
restaurants, and then afterwards measure over a period of time before an actual bonus system tied
to waste reduction could be created.
Considering the time frame currently available for KFC Denmark available to implement BSC,
management decided that a future revision of the reward and incentive structure could consider
the draft proposals, but that it wasn’t something that would be implemented in this revision of
BSC at KFC Denmark.
Targets decided upon by management were
employee turnover rate below 15%
all employees should pass the mandatory hygiene course on the first try
46
As has been mentioned in the theory-culture and considerations-learning and growth headline,
the common core component of employee empowerment to create goal congruence is difficult to
implement in KFC Denmark. As such it was decided that a reduction in employee turnover rate
and quick installment of new employees by having them pass the mandatory test on the first try
to be a sufficient goal for this revision of BSC. (Full size in appendix 5)
(Inspired by Kaplan and Norton, 1996: 9, 68)
5.4 Defining leading and lagging indicators into a strategy map
Within the BSC framework, the performance measures consists of a mix of leading and lagging
indicators of performance. Leading indicators can help project future financial performance and
includes measures such as employee satisfaction and customer satisfaction (Albright and Lam,
2006). As KFC Denmark has not made much use of metrics in the past to judge future
profitability or to assess the profitability of its restaurants, there was some uncertainty to whether
the usage of traditional leading economic indicators such as GDP development of Denmark,
national reference interest rate of Denmark, unemployment/employment rate could be of use to
predict future profitability. Regular lagging indicators such as daily/weekly revenue as an
indicator for monthly/annual profitability were used more as comparison to assess the
profitability compared to the same period the year before.
47
Top management decided that they would assess the need to use leading economic indicators
further in time, but that it was something they would not use in this iteration of BSC. They also
decided to expand the use of lagging indicators to use new metrics.
The author together with top management created a strategy map to get an overview of the
different goals in the 4 perspectives (Appendix 6). The strategy map shows the goals to achieve
the long term competitive advantage to achieve long term sustainable growth. The strategy map
displays the cause and effect relationship that exists in KFC Denmark according to top
management. It displays how activities in the learning and growth perspective support the
changes in the other perspectives to achieve the strategic goals.
5.5 Ideas for implementing BSC
When implementing BSC one has to consider what is to be achieved when defining the vision
and strategy of the company. When BSC is properly implemented it is meant to create goal
congruence throughout the organization with a clear understanding of how each individual’s
action brings the company closer to achieving its strategic goals. This allows the company to
unleash its true potential by creating a clear cause and effect relationship between different
SBU’s goals and actions in a company.
This is what will allow a company to set ambitious visions and goals that distinguishes a time
period with BSC as management system from past time periods of strategies and vision. A goal
with implementing BSC is to create discontinuous development, to switch from an evolving
strategy to a revolutionary strategy. However great this sounds in theory, it is easier said than
done. It is common for many implementations of management systems in general to fail in being
implemented, failing to deliver according to promises or becoming overly complex.
When implementing the BSC management system, metrics is a reoccurring topic of discussion as
a vital core of a proper implementation of BSC, is metrics. It comes down to these points:
Measuring the right thing
Measuring right
Amount of metrics in relation to information gained
As have been discussed, there are numerous factors that could affect how useful the metrics are.
In BSC the metrics are vital to a successful implementation, if a clear cause and effect
relationship between strategic goals and proposed metrics cannot be established then they
probably aren’t useful.
5.6 Analysis of KFC Denmark’s implementation
The conditions that KFC Denmark operates in provided some obstacles that affected the
flexibility in how BSC could be implemented. In KFC Denmark’s implementation of BSC, the
financial- and customer perspective metrics have a direct impact on the company’s desire to
achieve its long term goals. When considering some of the core purposes of BSC (Kaplan,
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Norton, 1996) together with how KFC Denmark plans to implement BSC, it is apparent that
there is considerable discrepancy between theory and practice in this case study. The lack of
change in empowerment and delegation of authority in KFC Denmark removes one of the base
pillars of a BSC implementation. As the preservation of the status quo towards the staff removes
an opportunity to create goal congruence amongst the staff, there is a risk that KFC Denmark
will only expand its use of financial metrics and not reap the benefits that has been promoted by
Kaplan and Norton in “The Balanced Scorecard” (Rompho, 2011; Hatton, Emerson, Rivers,
Mason, Mason, Swarbrick, 1999; Miner, 2003; Mitchell, 1973; Tudor, 2011).
When taking the Danish culture and the culture of the fast food industry into consideration it
cannot be directly concluded that the lack of empowerment will cause KFC Denmark’s
implementation of BSC to fail, as there was no inherent use of the level of empowerment
described by Kaplan and Norton (1996) and Tudor (2011). An eventual introduction of a bonus
incentive system could create opportunism amongst employees that degraded the quality of work,
as well as it could have created involvement and commitment. The uniqueness of KFC
Denmark’s case, Danish culture and fast food industry, makes it difficult to find clear measures
that work or make generalizations from implementations of BSC in other SME. While the use of
performance metrics in the internal processes and learning and growth perspective are reasonable,
they do not align with the long term strategic goal of the company. As the success or failure
within some metrics do not affect the company’s long term goals.
The heavy bias towards financial metrics by KFC Denmark will not drive a change in how the
organization operates, as the staff is not involved in shaping how to achieve the new financial
metrics. Top management’s decision to expand the use of metrics, would mainly result in an
increase in administrative work and mark a formalization of some agreements and knowledge
that previously was tacit knowledge. While it is beneficial to have tacit knowledge becoming
explicit knowledge, it also has to be relevant for the company’s long term goals.
While it would be more suitable to measure the effects at a further point in time to clearly assess,
measure and analyze how well BSC scale down into small companies in this case study. It was
beyond the scope of this report, as our topic of research focuses on the feasibility of an
implementation of BSC in a small organization.
5.7 Set evaluation milestones and follow up processes
When discussing the necessity for top management to set a time frame to revise the BSC
implementation it was recommended that it should allow a time frame to implement the changes
necessary to accommodate the desire to expand the use of metrics. It was decided by top
management that a reasonable time frame for them to evaluate their first implementation of BSC,
and revise their infrastructure and work routines to accommodate the additional changes that
were proposed would be 6 months from its first iteration. Afterwards depending on the results,
either 6 or 9 months until the next reevaluation time point.
49
When comparing the expected fallout of the first iteration of the KFC Denmark’s BSC
implementation, it is apparent that there are considerable differences between the status quo and
what is to be achieved. If one considers the expectations for iteration 2 of BSC, there is an even
larger difference gap to bridge.
At each evaluation point in time, the parameters to evaluate are if the adjustments in
administrative work have led to any unwarranted increase in work load that can’t be related to a
value increase derived from useful economic data.
50
Chapter 6 Cultural and industry analysis
This chapter covers the analysis of culture and the fast food industry. The
author perceived culture and industry affiliation to have an impact on KFC
Denmark’s design and implementation of BSC. As BSC originates from US, it
is deemed to affect KFC Denmark’s BSC outcome. The fast food industry and
its characteristics are presented to provide additional information about a
factor that could impact the design of KFC Denmark’s BSC.
6.1 Reviewing the research topic
“How does Balanced ScoreCard scale down into small organizations?”
Studies conducted by other researchers have identified factors related to the failure of BSC, due
to lack of resource and commitment, and time and design failure. The author has identified two
factors that are case specific for this research. The analysis considered culture, theory, industry
affiliation to assess whether KFC Denmark’s implementation of BSC is successful, semi-
successful or unsuccessful.
Culture is a factor whose exact influence is difficult to pinpoint, but nonetheless it will have an
impact on all aspects of society (Hofstede, 2001, 2005). The author’s opinion is that culture
could have an impact on how top management in KFC Denmark chose to design its BSC, as well
as affecting the reasoning behind top management’s decisions.
Industry affiliation could also affect the flexibility in designing and implementing BSC. The fast
food industry has characteristics that are not easily replicable in other industries (Tudor, 2011).
The author deemed that industry affiliation in this case study affected the outcome of KFC
Denmark’s BSC design.
6.2 Cultural overview
Bearing in mind that BSC is a management control system that has its origins in USA. Which
means it is a management control system that is heavily influenced by US corporate culture. As
KFC Denmark is a small company operating in Denmark, the disparity that can arise due to the
difference in national and corporate culture between the two locations can prove detrimental to a
successful implementation of BSC. In this report the author will try and describe the national-
and corporate culture of both USA and Denmark in brief. It won’t be a thorough explanation into
the field of cultural studies. Instead the author will make use of the results and conclusions
conducted by Geert Hofstede (1991). While there is an inherent risk in relying on one source for
a report, Hofstede’s “Cultures and organizations — software of the mind” has been constantly
peer reviewed by researchers in several disciplines that is analyzing culture (Milner, Fodness,
Speece, 1993; Sondergaard, 1994; Engel, Blackwell, Miniard, 1995; Dawar, Parker, 1994;
51
Dawar, Parker, Price, 1996; Sivakumar, Nakata, 2001; Lenartowicz, Roth, 1999, 2001), either as
an independent variable or as a co-variable in their research (Sondergaard, 1994; Steenkamp,
2001; Milner et al., 1993) (Engel et al., 1995; Dawar et al., 1996; Sivakumar, Nakata, 2001;
Shamkarmahesh et al., 2003). Hofstede has also amassed a quantitative mass of data in his
research covering over 116,000 questionnaires from over 60,000 respondents in seventy
countries in his empirical study. As the author did not have resources to conduct a similar
research regarding the difference between Danish and US national- and corporate culture. The
use of Hofstede’s research as a base platform were suffice for this report, quotes of Hofstede’s
own definitions and explanations were used in cases where the author could not re-define them
in a more simplistic manner.
6.3 Culture variables
While the definition of cultural variables to use has been discussed amongst scholars (Bond,
1987; Clark, 1990; Dorfman, Howell, 1988; Hofstede, 1984, 1991; Inkeles, Levinson, 1969)
Keillor, Hult, 1999; Schwartz, 1994; Smith et al., 1996; Steenkamp, 2001; Birnberg,1988;
Lenartowicz, Roth, 1999). Hofstede’s defitions are the most widely used in psychology,
sociology, marketing, or management studies (Sondergaard, 1994; Steenkamp, 2001). Hofstede
outlines 5 dimensions that are used to measure cultural differences between nations in his
research:
6.3.1 Individualism–collectivism (IDV)
The individualism-collectivism dimension describes the relationship that each individual in a
society has with their surroundings. It is reflected in each individual’s reference to the society
they exist in with the terms of me or us.
“The high side of this dimension, called Individualism, can be defined as a preference for a
loosely-knit social framework in which individuals are expected to take care of themselves and
their immediate families only. Its opposite, Collectivism, represents a preference for a tightly-
knit framework in society in which individuals can expect their relatives or members of a
particular in-group to look after them in exchange for unquestioning loyalty.” (Hofstede, 2005
2nd
ed, s76)
6.3.2 Uncertainty avoidance (UAI)
The uncertainty avoidance dimension describes how the individuals in a society feel discomfort
at uncertainty and ambiguity. Since the future and relations between people always carry a
certain degree uncertainty, there are differences between how cultures react and tackle these
uncertainties. A high degree of uncertainty avoidance displays a desire to create frameworks to
reduce the degree of uncertainty. It could be with the help of law, rules, guidelines and rituals. A
low degree of uncertainty avoidance reflects a more relaxed approach to problems and
complications, and where practice and pragmatism is more prevalent (Hofstede, 2005).
52
6.3.3 Power distance (PDI)
The power distance dimension displays the degree that individuals in a society accept and expect
that power distribution is unequal. This also affects how a society tackles inequality in power
distribution. A high degree of power distance indicates an acceptance of high hierarchical order
where each person has a designated place. A low degree of power distance reflects there is an
expectation that power is more equally distributed and will strive to attain a fair degree of power
distribution (Hofstede, 2005).
6.3.4 Masculinity-femininity (MAS)
The masculinity-femininity dimension refers to a society’s framework of preference for goals. A
high degree of masculinity indicates a preference for heroism, assertiveness, monetary and
material rewards. A high degree of femininity reflects a preference for cooperation, modesty,
compassion and quality of life (Hofstede, 2005).
6.3.5 Long term orientation (LTO)
The long term orientation dimension is best described by Hofstede:
“The long-term orientation dimension can be interpreted as dealing with society’s search for
virtue. Societies with a short-term orientation generally have a strong concern with establishing
the absolute Truth. They are normative in their thinking. They exhibit great respect for traditions,
a relatively small propensity to save for the future, and a focus on achieving quick results. In
societies with a long-term orientation, people believe that truth depends very much on situation,
context and time. They show an ability to adapt traditions to changed conditions, a strong
propensity to save and invest, thriftiness, and perseverance in achieving results.” (Hofstede,
2005 2nd
ed: s229)
6.4 Cultural analysis
In this headline an analysis of the cultures in Denmark and USA were conducted in regards to
Hofstede’s 5 dimensions of culture. Additionally further analysis and description of
characteristics of corporate culture was done.
53
The results from the data gathered by Hofstede (2005: 44, 112, 121, 169, 223) are illustrated in
the diagram above. (Source: http://geert-hofstede.com/denmark.html , http://geert-
hofstede.com/united-states.html )
6.4.1 PDI
Denmark ranks low on the power distance scale with 18 points. This reflects a high degree of
power distribution amongst society and business, where supervisors assume a directing role more
than a steering role (Döös , Waldenström, 2007). In Hofstede’s research he describes Denmark:
“With a score of 18 points Denmark is at the very low end of this dimension compared to other
countries. This matches perfectly with what many foreigners in Denmark express: Danes do not
lead, they coach and employee autonomy is required. In fact, Denmark ranks highest amongst
the EU27 countries in terms of employee autonomy. With a very egalitarian mindset the Danes
believe in independency, equal rights, accessible superiors and that management facilitates and
empowers. Power is decentralized and managers count on the experience of their team members.
Respect among the Danes is something which you earn by proving your hands-on expertise.
Workplaces have a very informal atmosphere with direct and involving communication and on a
first name basis. Employees expect to be consulted.”
(http://geert-hofstede.com/denmark.html 2012-05-16)
USA ranks around medium on the power distance scale with 40 points, and the implications of
these results in accordance with US culture is best described by Hofstede:
“The United States score low on this dimension (40) which underscores the American premise of
“liberty and justice for all.” This is also evidenced by the focus on equal rights in all aspects of
American society and government. Within American organizations, hierarchy is established for
convenience, superiors are always accessible and managers rely on individual employees and
teams for their expertise. Both managers and employees expect to be consulted and information
is shared frequently. At the same time, communication is informal, direct and participative.”
(http://geert-hofstede.com/united-states.html 2012-05-16)
6.4.2 IDV
Denmark ranked high on the individualism scale with 74 points, which is described by Hofstede:
“This means there is a high preference for a loosely-knit social framework in which individuals
are expected to take care of themselves and their immediate families only. It is relatively easy to
start doing business with the Danes. Small talk is kept at a minimum and you do not need to
create relationships first. Danes are also known for using a very direct form of communication.”
(http://geert-hofstede.com/denmark.html 2012-05-16)
54
USA ranked very high on the individualism scale with 91 points, which indicates it is a highly
individualistic society where individuals are expected to look after themselves in almost all
aspects of life. Hofstede describes USA in regards to IDV as:
“This translates into a loosely-knit society in which the expectation is that people look after
themselves and their immediate families. There is also a high degree of geographical mobility in
the United States and most Americans are accustomed to doing business with, or interacting,
with strangers. Consequently, Americans are not shy about approaching their prospective
counterparts in order to obtain or seek information. In the business world, employees are
expected to be self-reliant and display initiative. Also, within the exchange-based world of work,
hiring and promotion decisions are based on merit or evidence of what one has done or can do.”
(http://geert-hofstede.com/united-states.html 2012-05-16)
6.4.3 MAS
Denmark ranked very low on the masculinity-femininity scale with 16 points, it shows that
Denmark is classified as a country with feminine society. Hofstede describes it as:
“In feminine countries it is important to keep the life/work balance and you make sure that all
are included. An effective manager is supportive to his/her people, and decision making is
achieved through involvement. Managers strive for consensus and people value equality,
solidarity and quality in their working lives. Conflicts are resolved by compromise and
negotiation and Danes are known for their long discussions until consensus has been reached.
Incentives such as free time and flexible work hours and place are favoured.”
(http://geert-hofstede.com/denmark.html 2012-05-16)
USA ranked medium on the masculinity-femininity scale with 62 points and is classified as a
masculine society. Hofstede describes it as:
“Behavior in school, work, and play are based on the shared values that people should “strive to
be the best they can be” and that “the winner takes all”. As a result, Americans will tend to
display and talk freely about their “successes” and achievements in life, here again, another
basis for hiring and promotion decisions in the workplace. Typically, Americans “live to work”
so that they can earn monetary rewards and attain higher status based on how good one can be.
Conflicts are resolved at the individual level and the goal is to win.”
(http://geert-hofstede.com/united-states.html 2012-05-15)
6.4.4 UAI
Denmark ranked low on the uncertainty avoidance scale with 23 points. This indicates a low
desire to structure up too much with rules and guidelines, and a high degree of pragmatism and
dynamic in approaching uncertainty. Hofstede describes it as:
55
“Plans can change overnight, new things pop up and the Danes are fine with it. It is a natural
part of their work life. Curiosity is natural and is encouraged from a very young age. This
combination of a highly individualistic and curious nation is also the driving force for
Denmark’s reputation within innovation and design. What is different is attractive! This also
emerges throughout the society in both its humour, heavy consumerism for new and innovative
products and the fast highly creative industries it thrives in – advertising, marketing, financial
engineering.”
(http://geert-hofstede.com/denmark.html 2012-05-16)
USA ranked medium on the uncertainty avoidance scale with 46 points, and is best described by
Hofstede:
“The US scores 46 on this dimension and therefore, American society is what one would
describe as “uncertainty accepting.” Consequently, there is a larger degree of acceptance for
new ideas, innovative products and a willingness to try something new or different, whether it
pertains to technology, business practices, or foodstuffs. Americans tend to be more tolerant of
ideas or opinions from anyone and allow the freedom of expression. At the same time,
Americans do not require a lot of rules and are less emotionally expressive than higher-scoring
cultures. “
(http://geert-hofstede.com/united-states.html 2012-05-16)
6.4.5 LTO
Denmark ranked medium with 46 points on the long term orientation scale. Hofstede described
Denmark as a short term orientation culture.
“Societies with a short-term orientation generally have a strong concern with possessing and if
A is true then B must be false. Focus in business life is very much on what is happening now
instead of in ten years’ time. Priority is therefore given to abstract rationality and analytical
thinking”
(http://geert-hofstede.com/denmark.html 2012-05-16)
USA ranked low with 29 points on the long term orientation scale and can also be classified as a
short term orientation culture. However the framework that Hofstede describes USA is different.
“It is a culture focused on traditions and fulfilling social obligations. Given this perspective,
American businesses measure their performance on a short-term basis, with profit and loss
statements being issued on a quarterly basis. This also drives individuals to strive for quick
results within the work place. There is also a need to have the “absolute truth” in all matters.”
(http://geert-hofstede.com/united-states.html 2012-05-16)
56
2012-05-16)
6.5 General culture analysis
There are stark differences in culture between Denmark and USA (Nørreklit 2006), Hofstede’s
research has highlighted the situation in modern times. Most of these differences have arisen
through history and are a result of how the business and worker culture has developed.
The Danish culture has a long history of amassing power and authority to collective institutions
(Schramm-Nielsen, 2001; Ramstad, 1991; Nørreklit, 2006). This allowed few institutions to
represent many people in negotiations with larger corporations. The dominant presence of unions
in current Denmark can be attributed to its historic heritage. As such, business relations display a
high rate of group decision making between groups with concentrated authority (Nørreklit, 2006).
Research shows that open communication, negotiation and clear consensus were important in a
budgeting process, and that the focus is coordinating resources and delegation of authority
instead of focusing on prioritizing and resource allocation (Melander, 2003). The importance of
clear communication reflects the desire to balance different stakeholders and special interests
(Nielsen, Sørensen, 2003). This emphasis the collective rather than the individual as was shown
by Hofstede ‘s research (2001), while also highlighting the importance collective cooperating
capabilities of the individuals in the Danish society.
The collectivism of Danish culture is also shown in its use of bonus incentive system (Nørreklit,
2006). A past study has shown that the use of bonus incentives in Danish firms were very low
amongst managers (Nørreklit, Sørensen, 1998). This does not mean that the Danes dislike
autonomy as can be viewed in the above diagram, the low PDI and high IDV value is reflected in
the high level of empowerment in Danish business culture. It is expected that the individuals’
empowered realizes the responsibility that comes with the increased authority and will act
accordingly (Schramm-Nielsen, 2001). The lack of incentive bonus system is also attributed to
the fact that such a system requires the capability to measure and control results in quantitatively
and non-ambiguous way, this can become a difficulty in service industries where work is
performed by several units in a process chain and the value contribution of each unit is difficult
to separate from another (Merchant, 1985).
The US culture is highly individualistic with masculine characteristic striving towards monetary-
and materialistic rewards (Hofstede, 2001). The delegation and concentration of power and
authority that is characteristic of Denmark barely exists in USA. Each individual is expected to
look after themselves and be able to negotiate their rewards and performance criteria (Hofstede,
2001). Hence why the US corporate culture is in stark contrast to the Danish, in USA businesses
favors the use of individual bonus systems (Hofstede, 2001; Westerman, Beekun, Daly, Vanka
2009), which is in line with the data and conclusions that Hofstede had. When it comes to
organizational structure, the corporate culture in USA is best described as a strong formalized
organizational structure, with strict hierarchies and careful attention to formalities in regards to
position and title. The distance between employees and management are quite high. Denmark
57
while adhering to the need for organizational structure were less accepting of hierarchies with a
high degree of pragmatism in work (Hofstede, 2001)
6.6 Impact of culture
The cultural differences between the two nations had an impact on how KFC Denmark viewed
some of the basis of structuring up the implementation of BSC. Most prevalent is the
implementation regarding learning and growth. Since the financial, customer and internal
processes perspectives contain metrics that do not directly deal with staff in the company, they
won’t be impacted by the cultural differences.
The learning and growth perspective emphasizes the need to create goals that individual staff
within the company embraces to achieve full top down goal congruence. Theory has outlined
certain requirements and rewards that need to be constructed in the learning and growth
perspective to successfully accomplish goal congruence (Norton, Kaplan 1996). Those
requirements concern employee empowerment, involvement, encouragement, reward and
recognition.
The Danish culture favored collective collaboration but not individual performance systems,
such creating empowerment within KFC Denmark could pose a difficulty from a cultural
perspective (Schramm-Nielsen, 2001). There is also the difficulty of properly measuring effort
and connecting it with an appropriate reward for each individual (Merchant, 1985). As there is an
ambiguity in how to properly reward together with a resistance from top management to install a
reward system for all staff, there are considerable difficulties to fully execute the learning and
growth perspective. The lack of reward will complicate the ability to receive active involvement
from staff as well as to hand out recognition and encouragement. As the staff is the personnel
that have the most direct contact with customers, a system to empower and reward the employees
could have created that extra enthusiasm amongst employees to make them perform the extra
percentages. However, that is not a certain factor, as there is a low cultural acceptance of
performance based pay it might as well have back fired.
6.7 Analysis of the fast food industry
The fast food industry has certain characteristics concerning employees’ motivation,
involvement, creativity, pay, reward and incentives. The difficulty concerning employee
empowerment related to cultural factors has previously been discussed, in this headline
empowerment concerning industry practices will be addressed as there are certain characteristics
for the fast food industry that are not prevalent in other industries, and that cannot be replicated
either (Tudor, 2011).
6.7.1 High turnover rate
The fast food industry mainly employs young people and students. This is because working in
the fast food industry is not perceived as a long term job, as there are few if any possibilities for
advancement. The initial perception of low salary and no career already creates a platform that
58
will generate a high turnover rate of employees (Harrison, 1992). The high turnover rate is also a
result of the working conditions in relation to the pay received, as working in the fast food
industry is stressful with low possibility for personal- and skill development. The high turnover
rate in the fast food industry makes the use of part time- and short term contracts prevalent and
the use of long term contracts is relatively rare, as the possibility to extend part time- and short
term contracts until the employee wants to quit are relatively easy (Tudor, 2011; Test, Flowers,
Hewitt, Solow, 2003).
6.7.2 Low salary
Salaries within the fast food industry are usually close to the minimum wage set either by law or
negotiated by unions. The payment as an important reward factor has been stressed by studies
(Flamholtz, Das, 1985; Harrison, 1992), which is why the level of compensation is important,
since there are numerous fast food chains that potential employees can work at (Hatton, Emerson,
Rivers, Mason, Mason, Swarbrick, 1999; Miner, 2003). A change in compensation for work
performed isn’t something that the individual can influence as the initial salary was set by other
actors. The fast food industry usually does not have direct monetary incentive systems that
rewards individual employees in accordance with their performance (Merchant, 1985; Cable,
Judge, 1994). Job relevant information and work stress are found to mediate the relation of how a
performance measurement system is linked to organizational strategy and employee performance
(Burney, Widener, 2007). The lack of benefits is also a factor that reinforces the feeling of low
salary within the fast food industry. While for example the apparel and retail industry, which also
employs large amounts of unqualified labor, can provide the same basic salary together with
benefits such as in store discount will appear as a more attractive employers (Tudor, 2011).
6.7.3 Low barrier for entry and exit
Working in the fast food industry requires no former work experience of any kind, nor any
educational experience. As the work routines are often simplified and can be taught in a few days
to new employees barring government mandated educations. In some occasions not even
language proficiency is required, as the personnel can be staffed in the kitchen or other area
where no direct communication with customers is required. Such flexible requirements create a
very low barrier of entry and allow almost anyone to work in the fast food industry (Tudor,
2011).
6.7.4 Large pool of potential employees
The low entry- and exit barriers’ of the fast food industry enables the employers to constantly
have a large pool of candidates to select potential employees from. This is something both the
employer and employee is aware off and can cause a demoralizing effect, as both parties are
aware of the possibility that the employee can leave or be replaced at any given point in time
(Tudor, 2011).
59
6.7.5 No employee empowerment
It is an industry norm rather than exception that employees receive no form of empowerment
from top management. The nonexistence of employee involvement and support of employee
initiatives can make the work places in the fast food industry appear demotivating (Flamholtz,
Das, 1985), as the voices of the employees are ignored and potential creativity goes to waste.
Employee empowerment such as recognition, delegation and support of initiatives and ideas can
create positive effects such as improved employee commitment and employee satisfaction
(Mitchell, 1973; Tudor, 2011). In the industry, the employees that are empowered are assigned a
team coordinating position, scheduling the remaining staff and having authority over them. In
this case the primary objective of a performance measurement system is to motivate managers to
make decisions consistent with the long term strategic goals in the company (Kaplan, Norton,
1996; Flamholtz, Das, 1985).
6.7.6 Impact from industry affiliation
The industry affiliation of KFC Denmark in this case, had an impact on the possibilities and
decision making regarding 2 perspectives in KFC Denmark’s BSC design. The personnel
composition of KFC Denmark obstructed a possible metric that would involve employee
empowerment. As the industry preconditions weren’t optimal, according to top management to
initiate a reasonable level of employee empowerment, it was a measure that was discarded.
60
Chapter 7 Analyzing BSC in small organizations
This chapter will cover the analysis of KFC Denmark. The analysis will cover
all the factors that have been previously discussed, method, theory, KFC
Denmark’s current condition, KFC Denmark’s BSC design and culture.
Comparison will be made between a theoretical BSC design and KFC
Denmark’s design. Additionally a comparison will also be made with
Rompho’s case study of a failed BSC in a SME.
The author will analyze KFC
Denmark’s implementation of BSC
from 2 perspectives:
7.1 Theoretical BSC design and
KFC’s BSC design
Kaplan and Norton’s (1996) intention
with BSC was to balance soft and
hard metrics in a company. This
would allow top management in a
company would be able to view
relevant metrics from all divisions in
a company and act accordingly with
the information at hand. This would
make it possible to manage a
company with a cockpit view, similar to a pilot in a plane.
Looking at KFC Denmark’s BSC design (appendix 5, 7) one can see a considerable imbalance in
its design of BSC. With a large focus on financial metrics and less focus on customer-, internal
business- and learning and growth metrics. While such an imbalance is not a signal that a BSC
design is flawed, in this case it shows that there is a tendency to focus on financial metrics as
they were considered easier to understand to understand. The softer metrics were considered
relevant, but assessing their impact was considered more difficult.
61
The difficulty in determining the actual cause and effect relation between the selected metrics
makes it difficult for the author to assess whether the selected design is successful or not. As was
highlighted by Nørreklit (2000), vagueness in cause and effect relations puts a company at risk in
assuming that measured metrics are useful (Selto, 2001), when opposite could be true in some
cases. KFC Denmark’s BSC design encompasses all 4 perspectives that has been described in
theory (Appendix 5, 7), making use of less than 20 metrics in total, the use of few metrics is
something that Kaplan and Norton (1996, 2001) has argued that it is more useful to have few
metrics with clear underlying cause than many metrics with overlapping causes (Selto, 2001).
KFC Denmark’s BSC design does not suffer from information overload (Cummings, 2004),
rather the problem lies with assessing causality in the BSC design. While the author has both
experience and knowledge of the organization and knowledge about BSC, the outcome of an
actual implementation cannot be assessed prior to the implementation.
While it was possible to design a partial implementation of BSC encompassing 3 or 2
perspectives instead of having all 4 perspectives (Johanson, Skoog, Backlund, Almqvist, 2006),
the choice to have 4 perspectives was deemed more fitting by top management, as it would be
easier to remove metrics in a perspective than to add a perspective with new metrics.
The conditions in this case study are very distinct, which makes generalizations difficult. The
factors fast food industry and culture makes it difficult to generalize the reasoning and results
from this action research. First there is the fast food industry, BSC focuses a lot on a company’s
internal structure and functions. Companies in the fast food industry do not have any similarities
to case studies found in reference cases (Kaplan, Norton, 1996), additionally the size of KFC
Denmark cannot compare to any of the companies mentioned in reference cases (Kaplan, Norton,
1996). The author’s opinion is that the culture factor had an impact on how KFC Denmark
53%
17%
18%
12%
KFC Denmark's BSC design
Financial metrics
Customer metrics
Internal processes metrics
Learning and growth metrics
25%
25% 25%
25%
Theoretical BSC design
Financial metrics
Customer metrics
Internal processes metrics
Learning and growth metrics
62
designed their BSC implementation, though that shouldn’t affect the externality of this report.
The Danish culture while promoting individuality and employee initiative, did not promote the
use of individual based performance rewards. The distinct collective culture of Denmark can in
this case together with industry affiliation be attributed to the lack of employee empowerment.
The research question focused on how BSC scale down into a small organization, as culture
mainly affects the design and selection of metrics. Since the design process that KFC Denmark
undergone to design the BSC implementation is not strictly following the theory that Kaplan and
Norton (1996) describes. An implementation of BSC regardless if the outcome is successful or
unsuccessful in this case, means BSC can be scaled down to small organizations.
KFC Denmark’s size and top management’s reluctance to create empowerment amongst all
employees is a factor that potentially impacted the design of KFC Denmark’s BSC. The cultural
analysis has highlighted the high level of power distribution and autonomy amongst Danish
workers. However, that is something that is conditioned by other circumstances such as industry
affiliation. It could be argued that the role of Danish culture could be more prevalent in this case
study, the industry affiliation limited the flexibility in decision making though.
7.2 Comparing KFC’s BSC design to empirical case
The purpose with comparing KFC’s design with a failed SME’s BSC, is to identify similar
factors between the two cases. While it’s too early to judge the success of KFC Denmark’s BSC
design, it can be beneficial to identify if there are any failing factors in KFC Denmark’s BSC that
has been identified in Rompho’s (2011) case. The empirical reference case that the author used
for this report detailed some factors that were prevalent in a failure when implementing BSC in a
SME (Rompho, 2011).
The two factors were design and process that caused the Rompho’s case study company to fail in
implementing BSC. In the empirical case there were large imbalances in metrics as well as
vagueness in cause and effect relations between metrics that were measured (Rompho, 2011).
While there is an imbalance towards financial metrics in KFC Denmark’s case, it is not only bias
that can distort the success of a BSC design. Vagueness in cause and effect, and measuring the
wrong metrics has a larger impact on the success of a BSC design (Nørreklit, 2000). While the
researcher and top management both regard the selected metrics for KFC Denmark’s design as
having a cause and effect relation between them. Assessing the actual cause and effect relation
after implementation and having it peer reviewed seems like the most suitable method to assess
the success of KFC Denmark’s BSC design.
The 2nd
failing variable in the empirical case was the process factor:
Lack of support from top management
ScoreCard is only used by top management
Long development process
Viewing BSC as a one time performance measurement project
63
Hiring inexperienced consultants
Only using BSC for compensation assessment
Comparing the process failure from Rompho’s (2011) case, it is possible to identify some factors
that are similar in both cases. In KFC Denmark’s case, the BSC will mainly be used by top
management and some operations managers in some restaurants to gauge performance. This
decision was mainly due to the industry factor described before with high turnover rate and large
proportion of young employees. Second factor that is somewhat relevant to KFC Denmark’s
process is the use of inexperienced consultants. While this action research is the author’s first
practical implementation of BSC, the author has both experience and knowledge of KFC
Denmark. As such the author has a good understanding of what would be feasible in practice,
which is something an outside consultant, whether experienced or inexperienced, might not be
able to identify when trying to design a BSC.
While there are similar factors in both Rompho’s (2011) case and KFC Denmark’s BSC design,
it is a fact to consider when assessing the results of it in the future. To make a premature
judgment based on an empirical case whose conditions do not resemble KFC Denmark is
something that would be difficult to argue based on facts.
7.3 Overview
Looking at KFC Denmark’s BSC design from 2 different perspectives has shown that it is
possible to identify factors that speak for and against a successful BSC design. It also highlights
the difficulty in making a judgment on success or failure until the system has been tested over a
period of time.
64
Chapter 8 Conclusion
This chapter covers the conclusions that the author has reached after
analyzing KFC Denmark’s design, the feasibility of its design, implementation,
and consideration regarding alternative approaches. The author’s opinion of
this report’s outcome is presented together with proposals for future research.
The conclusion that BSC can scale down into small organizations with all 4
perspectives is possible, though the feasibility could vary between different
organizations. As costs for implementation varies, partial BSCs could be more
feasible in some cases.
The author sought to research “How does BSC scale down into small organizations” and with the
help of this case study, make a judgment on the feasibility of using BSC in small organizations,
in this case a company with less than 100 employees. In this study it was possible to implement
it, though the author cannot take a stand as to the success of it, as it has to be evaluated at a
future point in time.
The analysis brought about 2 different perspectives to look at KFC Denmark’s design, and all of
them show that it is possible to scale BSC down into small organizations, even those the size of
KFC Denmark. However, since the conditions in small organizations differ considerably with
organizations used in reference cases (Kaplan, Norton, 1996) it is necessary to treat each case as
a unique project (Sandhu, Baxter, Emsley, 2008).
Scaling down BSC into small organizations can also be assessed on the choice of having a full or
partial implementation of BSC. In KFC Denmark’s case it was possible to use BSC’s 4
perspectives on a company with less than 100 employees.
The author would like to highlight some factors that were identified as vital in this research:
Unique characteristics
Small companies don’t have the best conditions to use BSC
Difficulty in implementing BSC’s 4 perspectives
Balancing complexity and simplicity
Centralized power
Need vs. usefulness in restructuring
While it can’t be concluded that BSC can scale down into all small organizations from just one
study. It has to be pointed out that when designing BSC for small organizations, each design
should be treated as a unique project (Heinz, 2001; Sandhu, Baxter, Emsley, 2008).
Generalizations from large scale BSC designs should be avoided (Heinz, 2001). This is due not
65
only to the size of the organization, but also due to control characteristics and hierarchies that are
vastly different in small organizations compared to a large organization. Treating each case as a
unique project is vital (Heinz, 2001), as not all small organizations can amass the time and
resources to implement a management and performance measurement system like BSC
(Papalexandris, Ioannou, Prastacos, 2004). The resource and time factors make it difficult to
implement BSC in a small organization. This difficulty could be reduced by using a partial BSC
implementation.
A small company usually keeps control and power concentrated to top management (Child,
2005). This makes it less feasible to empower employees in small organizations, while it is
considered a crucial factor for alignment of employee goals to corporate goals (Kaplan, Norton,
1996). Perception of change is vital to keep in mind, in KFC Denmark’s case the change was
initiated by KFC Europe. While it was necessary for KFC Denmark to design a BSC to use, it
was something that was perceived as more useful than necessary. Nonetheless, top management
put its support behind the BSC design as a lacking support from top management could cause the
BSC to fail. A final point that the author would like to make, is that it is important to keep things
simple. This is because of the knowledge gap that can exist between a consultant and top
management in a small company. Designing a BSC for a small company requires a delicate
approach to balance the complexity of introducing new metrics (Papalexandris, Ioannou,
Prastacos, 2004), new way of thinking and new views to an organization that can perceive itself
as simple and functional in light of unfamiliar changes. Balancing complexity and simplicity is
difficult regardless if one is assuming the role of researcher/consultant or consultant/researcher.
The author concludes that scaling down BSC into small organizations is fully feasible. Delicate
care and attention is needed in approaching each case as a unique project (Heinz, 2001). Making
adjustments to the design of BSC and viewing the case from the target organizations perspective
could substantially reduce the difficulty in implementing BSC in a small organization.
66
8.1 The outcome of this report
The results from this report have enabled top management at KFC Denmark to implement a BSC
encompassing all 4 perspectives into their organization. Top management has throughout this
design process been able to understand the formalities surrounding a formalized performance
measurement- and management system. The perception of BSC was according to top
management demystified.
“Had we been approached by KFC Europe to simply implement measurements to measure
different levels of the organization, we would’ve been able to start directly assessing possible
measurements. The order to use BSC at first confused us, but now it is not as complicated as the
name implies. While we would’ve been able to gather measurements in different levels of the
organization, the mindset of aligning all measurements with long term goals presented a new
useful perspective.”
Snorri Trastarson, General Manager KFC Denmark
It is the author’s hope that this report can further the research for better performance
measurement- and management systems for small organizations. This report has shown it is
possible to implement such systems into a small organization that is not accustomed to a
formalized management system. While it is possible and feasible it might not always be practical
and cost effective. The author’s opinion is that results, conclusions and opinions’ of the author
can contribute to the future research related to performance measurement- and management
systems for small organizations, and furthermore find cost-effective methods to implement them.
The author hopes this report can inspire other small organizations to pursue the possibility to
implement performance measurement- and management systems. Furthermore, this report has
shown that it sometimes could be more reasonable to design an unbalanced scorecard depending
on the target organization’s conditions. While this deviates from Kaplan and Norton’s (1996)
intention with BSC, the use of an unbalanced BSC was more suitable in KFC Denmark’s case.
8.2 Future research proposals
As data covering BSC implementations for small organizations is scarce in both theory and
practice (Rompho, 2011; Andersen et al., 2001), it is the author’s intention that this report can
provide additional data for other researchers to further the research in how to design BSC for
small organizations, and hopefully also open up new possibilities for how small companies be
managed, controlled and measured. The author’s opinion is that the possibility for small
organizations to use complex management and performance measurement systems is something
that should be further explored. Not only regarding the use of BSC, but also encompassing the
use of other performance measurement systems.
67
The author’s suggestions for further research surrounding the topic that has been presented in
this report:
BSC functionality in small organizations, what knowledge can be derived from
implementations effects and results
Identifying best practices when designing BSC for small organizations
How to cost effectively design BSC for a small organizations
Cost-effective performance measurement in small organizations
Two points that have been central in this report has been to understand the use of performance
measurement- and management systems for small organizations. This is why the author’s
suggestions’ for further research revolve around those two topics.
68
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Appendix
1. Organization structure
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2. Top management, background information
Background information regarding the interviewees at KFC Denmark
Bjartmar Trastarson - CEO
Bjartmar Trastarson has worked in this position for 16 years. He is responsible for
communicating with the KFC headquarters and informing them if any changes relate to the
company's future or present goals. He creates policies and carries out any specific actions that are
recommended by the HQ. He makes final decisions on the company to keep it profitable. He sets
a budget for the company and oversees investment planning and evaluates all projects and
determines their value to the company.
Snorri Trastarson - General manager
Snorri Trastarson has worked in this position for 9 years. He is primarily responsible for guiding
employees in achieving the goals and ambitions of the organization. He ensures that all processes
and practices are working in a proper manner. He puts together management teams and is in
charge of recruitment. He trains, guides and assists newly hired restaurant managers and
supervisors, regarding handling daily processes and employee performance and discusses and
devises with them any specific goals, which are to be accomplished within a certain time period.
He ensures that individuals get along in all departments and finds solutions to problems if any
occur. He works to create an efficient, positive environment for all employees.
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3. Interview 1, questions
Interview #1 questions
What is KFC Denmark’s current vision and strategy?
Has the European headquarters given any guidelines or orders for how KFC Denmark should
grow?
How do you think KFC Denmark’s long- and short term strategy will be affected by
implementing BSC?
Is there room for innovation within KFC Denmark in regards to operations and employee
involvement and employee empowerment?
What metrics are KFC Denmark currently measuring and why did you choose those metrics?
What performance metrics is KFC Denmark focusing on?
Why did KFC Denmark choose the current metrics?
Is profitability responsibility delegated to operations managers in the local restaurants or is it
centrally managed?
What responsibilities are delegated to operations managers?
Which parts of KFC Denmark’s operations are centrally regulated by KFC Europe?
Does KFC Europe decide which products that will be sold in KFC Denmark?
What are the crucial factors when deciding on which products that will be introduced to the
Danish consumers?
4. Interview 2, questions
Interview #2 questions
General
What kind of metrics are the main interest of for KFC Denmark?
Would KFC Denmark be willing to expand the use of financial metrics?
How does KFC Denmark view the usage of metrics in areas such as internal process and learning
and growth?
How does KFC perceive BSC as a performance measurement- and management system?
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Financial
Does KFC Denmark currently measure margin?
How does KFC Denmark measure the profitability of promotion campaigns?
What are the underlying motivations when composing the product mix in a promotion campaign?
Is there any technical- or other obstacles to measure more measurements besides daily sales?
How does KFC Denmark perceive economic conditions to impact KFC Denmark’s future
expansion possibilities and profitability targets?
Customer
Does KFC Denmark attempt to provide reward incentives for returning customers?
Does KFC Denmark have any way to track customer identity?
How does KFC Denmark attempt to incentivize customers to return?
What strategies does KFC Denmark employ to attract new customers?
Internal Business Process
What possibilities for optimizing the internal processes does KFC Denmark perceive to be
available?
Has KFC considered measuring waste disposal volumes?
What aspects of the current work processes can KFC Denmark modify?
Is there room for local innovation?
How common are delivery errors?
Would KFC Denmark like to strive to reduce delivery errors to 0%?
Learning and growth
Would KFC Denmark be willing to introduce a compensation program encompassing all
employees?
Doesn’t KFC Denmark think employee empowerment would create more employee initiative
and engagement?
What possibilities does KFC Denmark see in developing in metrics for learning and growth?
What value does KFC Denmark see in developing in metrics for learning and growth?
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Is there any risk to further empower employees further down the hierarchy?
5. KFC Denmark’s BSC targets
83
6. Strategy map
84
7. KFC Denmark’s BSC design and theoretical BSC design
Distribution of the metrics from Appendix 5
53%
17%
18%
12%
KFC Denmark's BSC design
Financial metrics
Customer metrics
Internal processes metrics
Learning and growth metrics
25%
25% 25%
25%
Theoretical BSC design
Financial metrics
Customer metrics
Internal processes metrics
Learning and growth metrics
8. Article
Can a small organization function like a large corporation?
Author: Zhiyi You (Jenny)
As a small company succeeds, it can invest and grows. The complexity both in the
products and services sold and the company’s internal processes and structure
increases. The possibility of having an organizational structure and management
system that can scale, as company size and employee numbers grow from 10s of
employees to 1000s of employees would enable a company to have a competitive
edge. This advantage would enable a company to focus on its core competencies
in delivering value in services and products to clients, and not having to spend
resources and time to restructure after growing beyond a certain thresholds.
Balanced ScoreCard (BSC) is a performance measurement- and management system
developed by Kaplan and Norton, it is designed to balance an organization by
employing a scorecard that encompasses an organization from four different
perspectives: financial, customer, internal business processes and learning and growth.
This design is meant to balance the use of non-financial and financial metrics in an
organization. The use of BSC should create goal alignment throughout an organization.
There are numerous cases about how BSC has been designed, implemented and used
in large organizations. But theory and data surrounding the design and implementation
of BSC in small organizations is scarce. There is also the question of whether it is
necessary or useful for a small organization to implement a system that is mainly used
by large corporations.
The author conducted a case study and action research on a small organization, the
design and implementation of BSC encompassed all four aspects of a BSC. The results
showed a substantial bias towards financial metrics, representing over 50% of the
metrics. The distribution of the remaining metrics was evenly shared across the
customer-, internal process- and learning and growth perspective. While the study
resulted in an imbalanced scorecard, the early use of BSC will allow the organization
to grow and make slight adjustments to its targets, as there will be adjustments to the
scorecard in the future as the organization revises its targets.
The focus on financial metrics in the study is a trait that is reoccurring in both large
and small organizations. Company size affects the time and resources that can be
devoted to fully understand the benefits of having a BSC. While it might seem vague
at first sight to spend time and resources to invest in a management system, one has to
bear in mind that financial metrics only represent historic performance. It does not
show how the organization will perform in the future. Using BSC will enable the
organization to measure metrics that affects the future outcome of how it will perform.
However, if the target organization does not fully understand the implications
regarding the benefits of BSC, they won’t strive to achieve it.
Balancing complexity and simplicity is vital when it comes to small organizations and
management systems. Small organizations usually have no or few layers of hierarchy,
while they often have a formalized structure and an informal workflow in day to day
operations. The use of a performance measurement- and management system can be
perceived to add complexity to an organization that is perceived as fully functional.
While the study showed that it is fully possible and reasonably feasible to implement a
BSC, on an organization with less than 100 employees encompassing all four
perspectives, a generalization should not be made from this case study. The author
emphasizes the importance of approaching each BSC design as a unique project.
Though it is impossible to draw inspiration from other BSC designs, the final design
for each project should be based on the target organizations conditions.
While use of metrics across four different perspectives can be perceived as complex,
using more simple and relevant metrics in a partial implementation of BSC could
generate better results for some organizations, instead of a forced implementation
encompassing all four perspectives. Since BSC can be perceived as complex,
designing a BSC with two perspectives and then expanding it over time as the
organization grows is a feasible alternative.
The early implementation of BSC would allow an organization to make slight
adjustments to the performance metrics involved, and focus its resources and time to
keep delivering value to clients and stake holders. A good BSC design and
implementation will make it possible for an organization to align all the employees
towards a common goal, creating a competitive edge for the long term
competitiveness■